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Crypto News: Budget 2024: Will India see a reduction in TDS and other taxes that currently exist on crypto?
Over the past few years, a gradual positive change has been observed in the right direction. The government has clarified taxation and cryptocurrency exchanges are now declared entities under the Money Laundering Prevention Act (PMLA). However, the tax rate remains high, which has a negative impact on the growth of the ecosystem. This has led to a migration of trading volume to international exchanges, which poses higher risks in terms of compliance and customer protection.
Taxation of cryptocurrencies should also be at the same level as that of other businesses, TDS should be reduced from 1% to 0.01%, and compensation for losses should be allowed.
Government and other stakeholders need to promote awareness of the benefits and risks of crypto and align stakeholders on comprehensive regulation around Web3 technology.
Industry concerns
The Indian crypto industry has expressed concerns over the current tax framework. The 30% flat tax is considered significantly higher than that of traditional asset classes like stocks, discouraging long-term investment and encouraging short-term trading. The 1% TDS further adds to the burden, creating an additional layer of compliance and potentially hampering business activity.
This has led to a decline in domestic trading volumes, with investors potentially moving to offshore exchanges that offer a more favorable tax environment. This not only deprives the Indian government of potential tax revenues, but also jeopardizes the growth of the domestic Web3 ecosystem.
The untapped potential
Despite the current challenges, the Web3 sector in India holds great promise for future growth. According to industry estimates, Web3 could contribute $1.1 trillion to India’s GDP by 2032. This exponential growth can be attributed to the many applications of blockchain technology, including decentralized finance (DeFi), non-fungible tokens (NFTs), and the metaverse. Creating a vibrant Web3 ecosystem presents a unique opportunity for India to attract investments, create jobs, and become a global leader in this burgeoning technology revolution.A global perspective
Compared to India, several developed economies have taken a more measured approach to taxing cryptocurrencies. Countries like Singapore and Portugal have implemented lower tax rates for cryptocurrencies, creating a more conducive environment for innovation and investment. This highlights the potential competitive advantage that India could gain by introducing a more streamlined tax regime.
The government’s point of view
It is essential to acknowledge the government’s concerns about cryptocurrencies. The volatile nature of the market and the potential for misuse for money laundering and tax evasion are legitimate concerns that require regulatory action.
A call for reform
It is clear that a balanced approach is needed. A well-designed tax framework can ensure that government collects its fair share of revenues while encouraging responsible innovation within the Web3 sector. Open dialogue and collaboration between industry and government are essential to achieving this balance.
Tax optimization strategies
It is important to know that some investors are exploring alternative strategies under the current tax structure. This may include using Crypto-INR futures and options (F&O) offered by some platforms. However, it is essential to understand that these strategies are complex and may not be suitable for everyone. It is essential to consult a qualified tax professional before implementing any such strategy.
With the next budget As the new year approaches, the Indian crypto industry is eagerly awaiting potential changes in the regulatory system. A move towards more favorable tax regulations for the Web3 sector could unleash its immense potential, propelling India to the forefront of the global digital revolution. By embracing innovation while addressing regulatory concerns, India can create a win-win situation for the government and the burgeoning Web3 ecosystem.
(The author is the co-founder and CEO of Pi42. The opinions expressed are his own)
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