In anticipation of the final budget announcement for FY2024-2025 in India, a policy paper has highlighted the pressing reasons for the government to rethink its stance on crypto tax laws. The report, jointly prepared by the Centre for Tax Laws, NALSAR University of Law, and key members of the Indian crypto community, projects that India stands to gain Rs. 5,144 crores in capital gains by 2027 if significant changes are made to the existing laws.
One of the key points raised in the report is the exorbitant tax rate applied to crypto profits in India. At 30 percent, this tax is notably higher than that in other comparable economies such as Ukraine, Canada, and the US. Moreover, the additional one percent TDS levied on each crypto transaction is unparalleled globally, leading to a significant decrease in the number of users engaging with local crypto exchanges.
The stringent tax regulations have had detrimental effects on the Indian crypto ecosystem, with a staggering 81 percent drop in active users observed in 2023 alone. The inability to offset and carry forward losses in crypto transactions, as allowed in other industries, has further exacerbated the situation, prompting many investors to seek out foreign exchanges to circumvent the high taxes.
The policy paper emphasizes the urgent need for a revision of the current crypto tax laws to stimulate growth in the sector. By reducing the one percent TDS rate, the government could potentially boost revenue through capital gains taxes, while enhancing transaction monitoring by Virtual Asset Service Providers (VASPs) operating in India. This move is crucial in ensuring the sustainability and competitiveness of Indian crypto exchanges in the global market.
Despite the glaring issues highlighted by the report, the Indian government has remained silent on the prospect of revising the crypto tax laws. The Finance Minister’s omission of any mention of the crypto sector in the interim budget earlier this year has further deepened concerns within the industry. The lack of action from the government has only fueled demands from the crypto community for a more favorable tax regime to facilitate growth and innovation in the sector.
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