Crypto Quill

As the Indian government prepares to unveil the Union Budget 2024-25, the crypto community is eagerly anticipating potential reforms that could significantly impact the industry. The current tax policies and regulatory frameworks have posed challenges for the growth of virtual digital assets (VDAs) in India. Industry leaders are hopeful that the upcoming budget will address these issues by introducing measures such as reducing the tax deduction at source (TDS) rate on VDA transfers, allowing the offset and carryforward of losses, and equalizing the treatment of crypto income with other assets. These changes could create a more favorable environment for the crypto market to thrive.

Reducing the TDS Rate on VDA Transfers

One of the primary expectations from the Union Budget 2024-25 is the reduction of the TDS rate on VDA transfers. Currently set at 1%, this high rate has been a significant deterrent for market liquidity and participation. Retail investors and small traders, who form a substantial part of the crypto market, are particularly affected by this rate. Lowering the TDS rate to 0.01% would alleviate 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 impacted, promoting broader market participation.

The high TDS rate has led to reduced trading volumes and market activity, which in turn affects the overall growth of the crypto market. By addressing this issue, the government can foster a more dynamic and vibrant market. The Bharat Web3 Association (BWA) has been advocating for this change, presenting data to support the benefits of a lower TDS rate. The crypto community is optimistic that the government will consider this reform in the upcoming budget.

Allowing Offset and Carryforward of Losses

Another critical expectation from the budget is the provision to allow the offset and carryforward of losses from VDA trading. Unlike traditional financial markets, where losses can be offset against gains to reduce overall tax liability, VDA investors currently face higher net taxes despite incurring losses. This discourages long-term investment in the crypto market. 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.

Equalizing the Treatment of Crypto Income

The current tax regime treats income from VDAs differently from other asset classes, imposing a flat 30% tax on cryptocurrency earnings. This disparity has been a point of contention for the crypto community, which argues that crypto income should be treated on par with other tech-enabled sectors. Equalizing the treatment of crypto income with other assets would make crypto investments more attractive and equitable. This change would also reflect the growing importance of digital assets in the modern economy.

By aligning the tax treatment of crypto income with other asset classes, the government can create a more level playing field for investors. This would encourage more participation in the crypto market and support its growth. The crypto community is hopeful that the upcoming budget will address this issue and introduce measures to ensure parity in the tax treatment of VDAs.