Anticipating the Union Budget 2024: A Crucial Turn for Crypto Taxation in India

Anticipating the Union Budget 2024 A Crucial Turn for Crypto Taxation in India

2024 marks a pivotal year as digital advancements like Artificial Intelligence, Virtual Reality, and cryptocurrencies are set to transform various sectors and economies. India finds itself at a critical juncture, especially concerning the taxation policies on cryptocurrencies.

The existing tax framework, aimed at regulating the crypto sector, sparks debate on whether it aligns with the country’s larger economic objectives. This article explores the intricacies of the current crypto tax laws and highlights the urgent need for reassessing tax rates in the upcoming 2024 Budget.

Reducing TDS: A Step Towards Market Recovery

Presently, under Section 194S, a 1% tax is deducted at source on every sale or transfer of cryptocurrencies. Introduced to track crypto transactions, this steep rate has inadvertently pushed Indian traders towards foreign platforms, free from such tax constraints. The aftermath is stark – a staggering 90% drop in daily trading volumes on Indian exchanges and a surge in downloads of offshore trading apps.

Proposing a reduction in the TDS rate to 0.01% could strike a balance between necessary transaction monitoring and fostering sector growth. Such a move might encourage users to prefer Indian platforms, potentially boosting government oversight and tax revenue. This change is supported by the recent PMLA Notification, which recognizes crypto service providers as Reporting Entities, ensuring more effective transaction tracking. Lowering the TDS rate would align well with the government’s objectives and aid in the sector’s sustainable expansion.

Rationalizing Tax Policies: Setting Off Losses

The existing approach to crypto taxation, which prohibits setting off or carrying forward losses, demands urgent revision. It’s crucial to allow the set-off and carry-forward of losses in crypto transactions to align with the taxation norms of equity shares and derivatives. The current 30% tax, attributed to the speculative nature of digital assets, fails to acknowledge the similarities between cryptos and securities trading – both involving ownership, title, and transaction liquidity. Without provisions for loss adjustment, the tax framework is likely to dissuade traders from engaging in crypto transactions.

With a new government on the horizon, consistent and transparent regulations for the crypto industry are anticipated. This involves recognizing cryptocurrencies as a regulated asset class and applying similar tax slabs and set-off benefits as those for securities. Cryptos, like securities, vary in risk, necessitating a proper classification and regulation to guide investors. The expected regulatory framework should balance flexibility to adapt to the industry’s dynamic nature and robustness to safeguard investors and curb illegal activities.

Aligning with National Policies

The current tax laws clash with the government’s initiatives like “Make in India” and “Atmanirbhar Bharat”, aimed at bolstering domestic industries and reducing dependence on foreign entities. Utilizing international exchanges poses privacy risks, as Indian users’ data is stored overseas with limited protection. This leads to potential tax revenue losses and contradicts the government’s efforts to enhance the ease of doing business.

The government’s pragmatic approach towards crypto and its openness to policy realignment based on data is commendable. The hope is that the authorities will diligently assess the presented evidence, arrive at informed decisions, and act judiciously to improve the nation’s economy and citizens.