Union Budget 2024: The crypto community’s wish list

Crypto community in India has high hopes Union Budget 2024-25 will see several key changes that could have a significant impact on the industry. These proposals aim to create a more favorable environment for cryptocurrency trading and the adoption of blockchain technology. Here are the main points on the community’s wish list:1. Reduction of TDS on the transfer of VDAs

One of the major demands is to reduce the rate of tax withheld at source (TDS) on transfer of Virtual digital assets (VDAs) under Section 194S to 0.01%. Currently, the higher TDS rate of 1% acts as a deterrent for investors, leading to reduced liquidity and market participation. A lower TDS rate would encourage more transactions and foster a healthier business ecosystem. Further, it is suggested that the tax deduction threshold under Section 194S be revisited, increasing it from Rs 50,000 to Rs 5,00,000.

2. Compensation and carryover of losses

The crypto community has been advocating for the ability to offset and carry forward losses, similar to other industries. Currently, losses incurred while trading VDA cannot be carried forward to offset future gains from VDA or any other source of income, which discourages long-term investments and strategic trading. Allowing this flexibility would align the cryptocurrency market with other financial markets, fostering a more stable and investor-friendly environment.

3. Equal treatment of VDA income

Treating income from the transfer of VDA on the same basis as existing income sources is another important requirement. This means that crypto income should be recognized and taxed in the same way as traditional forms of income, such as from stocks or mutual funds. This change would not only simplify tax compliance for crypto investors, but also legitimize cryptocurrencies as a mainstream asset class. An amendment to Section 115BBH to reduce the tax rate from 30% to a rate comparable to assets in other sectors would be a welcome change.4. Call for the creation of a regulatory body

In addition to the financial adjustments mentioned above, there is a growing call for the creation of a dedicated regulatory body to govern crypto transactions. Such an institution would ensure transparency, protect investors, and provide clear guidelines for compliance, thereby promoting market trust and stability.

While the industry has welcomed the definition and inclusion of VDAs in the Income Tax Act, certain provisions, such as the high TDS rate and lack of clearing, have led many Indian VDA users to turn to non-compliant foreign exchanges to transact. This exposes them to the risk of losing their investment and violating the law, resulting in lower tax revenues for the exchequer.

The recent Financial Stability Report (FSR) of June 2024 by the RBI highlighted decentralised finance (DeFi) and its implications for financial stability. This reflects global regulatory efforts to ensure a safe and stable environment for digital assets. In the run-up to the Union Budget, incorporating these insights by establishing a robust regulatory framework under the aegis of SEBI or the RBI can help mitigate stability risks in the DeFi and digital assets space, thereby ensuring that India remains competitive in this evolving global market.

The crypto community is hopeful that the Finance Ministry will consider these proposals, leading to positive outcomes in the Union Budget 2024-25. Implementing these changes, including reducing the TDS and allowing set-off and carry-forward of losses, would encourage wider participation in the crypto market. A conducive regulatory environment is essential to drive innovation, as it allows the industry to transform existing businesses through the integration of blockchain technology.

(The author is Vice President, WazirX)

(Disclaimer(The recommendations, suggestions, views and opinions expressed by the experts are their own. They do not represent the views of The Economic Times.)

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(Disclaimer: The opinions expressed in this column are those of the author. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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