The cryptocurrency realm has experienced tumultuous times, navigating through a maze of challenges in the past year. High-profile mishaps involving major players like Binance and FTX, coupled with a global atmosphere of financial unease and credit constriction, have cast shadows over popular digital currencies, including Bitcoin and Ethereum.
With the interim Budget set to unfold in Parliament on February 1, stakeholders in the crypto domain – both investors and exchange proprietors – are voicing their longstanding plea for reduced tax levies on crypto assets this year. They are also advocating for a more refined policy framework governing cryptocurrencies, along with a clearer delineation of what constitutes virtual digital assets (VDAs).
Despite these appeals, there’s a pervasive expectation that the government may maintain its stringent stance. Rather than easing constraints, authorities seem inclined towards intensifying regulations, potentially leading to an outright ban on privately held cryptocurrencies. Reflecting on the previous Budget, Finance Minister Nirmala Sitharaman held firm, retaining the 30% tax on virtual assets initially proposed in FY22. This, coupled with an added 1% TDS on all crypto transactions as per Budget 2022, has fortified the government’s stringent fiscal approach towards this burgeoning sector.
Manhar Garegrat, standing at the helm of India & Global Partnerships at Liminal Custody Solutions, perceives Budget 2024 as a critical juncture, an opportunity to sculpt a thriving digital asset environment within India. He argues that maximizing the sector’s potential necessitates a foundation of clarity, innovation, and talent. Garegrat’s vision for the crypto market includes refined definitions and tokenization of VDAs, abolition of the 1% TDS on foreign-held crypto assets, and an intensified focus on Web3 project research and development.
The Crypto Dilemma: Taxation and Regulatory Challenges
The present expansive scope of VDAs, as outlined in notification no. 74 of 2022, is a point of contention for Garegrat. He champions a more discerning approach, advocating for the exclusion of tokenized assets with demonstrable underlying value from the VDA classification, akin to established exceptions such as those for gift cards. He believes such a refined definition would nurture a dynamic, inclusive digital asset ecosystem.
Garegrat also highlights the fiscal implications of the 1% TDS introduced in 2022, which precipitated an estimated $420 million shortfall in potential government revenue due to the migration of Indian crypto traders to international platforms. He proposes tax incentives for developing blockchain security infrastructure and implementing cutting-edge security protocols. This move, he argues, would attract investments, create high-skilled job opportunities, and cement India’s status as a frontrunner in secure digital asset custody.
Further, Garegrat calls for the establishment of special economic zones tailored for Web3 startups, advocating for tax exemptions during the initial stages of startup development. This, he believes, would allow entrepreneurs to dedicate their efforts to innovation and product development without the financial strain.
Proposed Solutions and Industry Expectations
Echoing the sentiment for change, Shivam Thakral, CEO of BuyUcoin, articulates the industry’s position at the crossroads of immense potential and frustrating stagnation. He urges the government to replace uncertainty with clarity, advocating for a legal framework that fosters trust and encourages growth.
This framework, according to Thakral, should simplify taxation complexities and provide clear directives for income and transactions, thereby easing the path forward. He also stresses the importance of exchange licensing protocols, envisioning them not as constraints but as symbols of responsible engagement in the sector.
Sumit Gupta, co-founder of CoinDCX, joins the chorus, emphasizing the need for strategic measures like lowering the TDS rate from 1% to 0.01% and aligning the tax rate with other asset classes by reducing it from 30%. Gupta believes that these changes could significantly rejuvenate the crypto sector. He also calls for a broader scope of the TDS mandate to explicitly encompass offshore platforms.
Ashish Singhal, co-founder and group CEO of PeepalCo, parent company of CoinSwitch, highlights the adverse effects of the current policies. He points out that the high TDS rate and lack of offset provisions have driven many Indian VDA users to non-compliant foreign exchanges, putting their investments and legal standing at risk. This shift has also led to reduced tax revenues for the government.
As the government prepares to unveil the Budget, the cryptocurrency industry stands at a critical juncture, its fate hinged on the government’s willingness to heed its calls for clarity, support, and reform. The sector’s stakeholders have laid out their demands and proposed solutions, all aimed at nurturing a robust, innovative, and inclusive digital asset landscape. Yet, the path ahead remains shrouded in uncertainty, with the industry’s pleas for revival and growth resting on the government’s next move.
