Crypto Quill

As the Indian government prepares to unveil the Union Budget 2024, the crypto community is buzzing with anticipation. The current tax policies and regulatory frameworks have been significant roadblocks to the growth and potential of virtual digital assets (VDAs) in India. To help this burgeoning market thrive, several key reforms are necessary. These include reducing the tax deduction at source (TDS) rate on VDA transfers, allowing the offset and carryforward of losses, equalizing the treatment of crypto income, and establishing a dedicated regulatory body.

Reducing the TDS Rate on VDA Transfers

The current TDS rate on VDA transfers is set at 1%, which significantly hampers market liquidity and participation. This high rate discourages frequent trading, particularly for retail investors and small traders who make up a large portion of the crypto market. Lowering the TDS rate to 0.01% would lighten the tax burden on investors, encouraging more active trading and enhancing market liquidity. Additionally, increasing the threshold limit for TDS applicability to Rs 5,00,000 would ensure that small investors are not unduly affected, promoting broader market participation.

A reduction in the TDS rate would also help retain more transactions onshore, leading to higher revenue for the government. The Bharat Web3 Association (BWA) has been advocating for this change, presenting data to support the benefits of a lower TDS rate. Despite the challenges, there is hope that the government will consider this reform in the upcoming budget.

Allowing Offset and Carryforward of Losses

Currently, the tax regime does not permit the offset and carryforward of losses from VDA trading, which discourages long-term investment in the crypto market. Unlike traditional financial markets, where losses can be offset against gains to reduce overall tax liability, VDA investors face higher net taxes despite incurring losses. To promote long-term investment and align the crypto market with other financial markets, the Union Budget should include provisions to allow the offset and carryforward of losses from VDA trading.

This change would provide a more favorable tax environment for investors, encouraging them to stay invested in the market even during downturns. It would also help stabilize the market by reducing the impact of short-term volatility. The crypto community is hopeful that this reform will be included in the budget, as it would align the treatment of VDAs with other asset classes.

Establishing a Dedicated Regulatory Body

The lack of a dedicated regulatory body for the crypto market has been a significant hurdle for its growth in India. A clear and supportive regulatory framework is essential for the development of the crypto industry. Establishing a dedicated regulatory body would provide much-needed clarity and confidence to investors and businesses operating in the crypto space.

Such a body could oversee the implementation of regulations, ensure compliance, and address any issues that arise. It would also facilitate dialogue between the government and the crypto community, helping to create policies that support innovation while protecting investors. The establishment of a dedicated regulatory body is a crucial step towards creating a more stable and predictable environment for the crypto market in India.