The Case for Revising Crypto Tax Laws in India

The Case for Revising Crypto Tax Laws in India

As India gears up for the final budget announcement for the financial year 2024-2025, there is growing pressure from various stakeholders for a revision of the existing crypto tax laws in the country. A recent policy paper, collectively compiled by the Centre for Tax Laws, NALSAR University of Law in Hyderabad, and members of the crypto community, highlights the potential benefits of reevaluating the current tax regime.

Since 2022, India has enforced a 30 percent tax on all crypto gains, making it one of the highest rates globally when compared to economies like Ukraine, Canada, and the US. Additionally, there is a one percent tax deduction at source (TDS) on every crypto transaction as the Finance Ministry aims to track and monitor virtual asset movements. However, the report argues that this stringent tax structure is negatively impacting the crypto industry in India.

According to the policy paper, the proposed revisions could potentially generate Rs. 5,144 crores in capital gains by 2027 if the tax laws are amended. By reducing the one percent TDS rate, the government could see an increase in revenue through capital gains taxes while also improving transaction monitoring by virtual asset service providers (VASPs). The report highlights that the current tax framework discourages investment and participation in the crypto sector leading to a significant drop in active users in the country.

Industry Response and Government Action

Many crypto exchanges in India have reported a decline in user engagement, forcing them to implement cost-cutting measures to sustain their operations. This has resulted in a substantial 81 percent drop in active users within India’s crypto space in 2023 alone. Some users are even turning to foreign exchanges to circumvent the high tax burdens imposed by the Indian government. Despite these challenges, the government has not indicated any intent to revise the existing crypto tax laws.

As the crypto industry continues to evolve globally, it is imperative for India to reassess its tax policies to remain competitive and foster innovation in the sector. The current tax regime is hindering growth and driving users away from domestic platforms. By addressing the concerns raised in the policy paper and exploring viable solutions, the government can create a more conducive environment for crypto businesses and investors in India.


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