During the presentation of the 2024 Union Budget on July 23, Indian Finance Minister Nirmala Sitharaman made no mention of cryptocurrencies, leaving the existing taxation structure unchanged. This decision was made amidst calls from local cryptocurrency advocates to lower the 1% tax deducted at source (TDS) to 0.01%, a change they argue could revive the struggling crypto industry in India.
Current Taxation Challenges
India’s approach to cryptocurrency taxation remains among the world’s strictest. Since the introduction of a 30% tax on crypto profits and a 1% TDS on transactions in Sitharaman’s 2022 budget speech, the local crypto market has seen a dramatic downturn. Trading volumes on Indian exchanges have plummeted by 97%, and active user participation has dropped by 81%.
Sathvik Vishwanath, CEO of Unocoin, one of the local exchanges, expressed disappointment over the government’s stance, suggesting that the decision to maintain the current tax rate indicates the government’s lack of seriousness about treating crypto as a legitimate business sector. He noted, “[The government] compares [crypto] to gambling and betting,” highlighting a persistent stigma surrounding the industry.
Research by the National Academy of Legal Studies and Research (NASLAR) indicates that the Indian treasury is losing approximately 59 billion Indian rupees ($700 million) in potential tax revenue due to reduced activity on the country’s leading exchanges. The study further suggests that this revenue could double if the crypto TDS rate were reduced to 0.01%.
Contrasting Treatment of Different Sectors
While the crypto sector’s plea for tax relief was ignored, the 2024 budget did include a TDS reduction for e-commerce operators from 1% to 0.01%. This disparity has only added to the frustrations within the crypto community, which feels increasingly sidelined.
The government’s cautious approach towards cryptocurrencies is backed by consistent warnings from the Reserve Bank of India (RBI) about the speculative nature of crypto assets. Despite the Supreme Court overturning an RBI ban on financial institutions servicing the crypto industry in 2020, the central bank’s stance remains largely unchanged, with recent bulletins warning about the risks associated with decentralized finance (DeFi).
Despite the current regulatory challenges, the local crypto industry remains optimistic about future improvements in the tax landscape. Vishwanath remarked, “Our country will need more developed countries promoting crypto, announcing ETFs, or making it legal tender before we can make a strong decision to amend taxation for the industry.”
Interestingly, despite stringent local regulations, India has emerged as a leader in global cryptocurrency adoption. The nation topped the Chainalysis 2023 Global Crypto Adoption Index, indicating a significant contrast between regulatory challenges and the widespread use of cryptocurrencies among the populace.
| Date | Event | Details |
|---|---|---|
| 2022 | Introduction of Crypto Tax | 30% on profits, 1% TDS |
| 2024 | Union Budget Announcement | No change in crypto tax rules |
| 2024 | NASLAR Report | Potential $700 million tax revenue loss |
| Ongoing | Industry Advocacy | Push for reduced TDS to 0.01% |
The 2024 Union Budget has left India’s crypto industry in a precarious position, with stringent tax regulations continuing to stifle market growth. While the finance minister’s stance reflects ongoing governmental caution, the industry’s advocates and a robust user base keep the hope alive for future regulatory reforms that could unlock the full potential of cryptocurrencies in India.
Featured image credit: starline via Freepik
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