Union Budget 2023: Several crypto exchange platforms and tax firms expect the government to reconsider the current putative tax structure for crypto and bring it to par with other normal business activities. They request the Government to also consider reducing the TDS rate to 0.01 per cent from the current 1 per cent and also to identify virtual digital assets as a regulated asset.

With just a couple of weeks left for the Finance Minister to present the Union Budget, various sectors are expressing their expectations from the government. From industry leaders of the fintech sector to agro-industries, all eyes are on the Budget 2023. Of late, both the Finance Ministry and the Reserve Bank of India (RBI) have been critical of crypto currency. Rather, the last budget was a major disappointment for crypto investors in India. Here is what crypto exchange platforms and tax firms expect from the government in the upcoming Budget —

Hefty taxes on crypto  

Cryptocurrencies and non-fungible tokens (NFTs) are still unregulated in India. Alongside, FM Nirmala Sitharaman in the last budget introduced hefty taxes on crypto. A tax of 30 per cent plus surcharge and cess has been imposed on the transfer of any virtual digital assets (VDA) like Bitcoin or Ethereum under the Income Tax Act, 1961 (Income Tax Act).

One of the major reasons why the government and the central bank continue to remain skeptical of crypto market is because of the financial loss it has caused in the last one year. In November 2022, the world witnessed the biggest crypto meltdown.

“We believe that the reasons for bringing putative taxation were to bring more transparency (who is trading how much) and to discourage participation in the Crypto ecosystem,” said Avinash Shekhar, Founder & CEO of TAXnodes, a crypto tax firm.

The total market value of cryptocurrencies went below USD 1 trillion in just a year from USD 3 trillion in 2021 and pushed Bahamas-based crypto exchange FTX into bankruptcy. The collapse of FTX empire wiped out its entire holding worth USD 16 billion. While the crypto peaked in November 2021, within a year investors across the globe lost more than USD 2 trillion.

Last year, the Government introduced a regressive tax regime on crypto transactions. As per a recent study, more than 80 per cent of the trading volume has shifted from Indian exchanges to foreign and P2P exchanges. However, it seems that both these objectives have not been met, stated experts. In fact, the putative tax regime has forced the trading volume to shift to Peer-to-Peer and to foreign exchanges, reducing the transparency and information flow to the Government.

Budget 2023 Expectations: Crypto tax

According to tax firm experts and crypto exchange owners, one of the amendments that could be highly welcomed by retail investors is the provision to offset losses from digital asset transactions — in the same way, that it applies to other financial assets and investments — as many consider the current tax structure regressive when compared with countries with high VDA adoption rates and defined tax policies.

Many believe that taxation on Virtual Digital Assets is a good place to start as it has given crypto investors assurance that the government has paid attention to this asset class. “The current tax rate of 30 per cent is on the higher side. In the upcoming budget, we hope to see the government reducing the tax rate on capital gains. A provision to offset capital losses against gains would also give investors a breather,” Raj Karkara, Chief Operating Officer of ZebPay, an Indian crypto exchange platform, said.

The taxation of cryptocurrencies is in a relatively nascent stage not just in India but across the globe and will evolve over a period of time, believe experts. Whilst the provisions provide clarity on many aspects, there are some areas on which clarity is sought by the crypto industry. Apart from tax relaxation, investors are also expecting some clarity in terms of crypto taxation.

“There is ambiguity on whether losses from one cryptocurrency can be set-off against profits from another cryptocurrency. While it is understandable that losses from crypto cannot be set-off against any other income, an inter-source set-off should be permissible and clarifications should be issued to this effect,” said Umesh Gala, Partner at Dhruva Advisors, a tax advisory firm.

Moreover, experts said that hefty taxation has paved the path for foreign exchanges to intervene in the Indian market. “The tax measures announced last budget have severely handicapped Indian exchanges and benefitted foreign ones. We hope that the government levels the playing field and remains true to the idea of Atmanirbhar Bharat and Make In India,” added Rajagopal Menon, Vice President of WazirX, an Indian crypto exchange firm.

Expectations from the govt: Going beyond budget
 

With UK lawmakers voting in favour of recognizing crypto as a regulated asset class and several big tech companies like Google, Facebook, and Mastercard taking initiatives to add Crypto and blockchain to their business, Indian crypto investors and exchange owners believe that the Indian government might offer something big in the future.

 “These companies set the trend and we strongly believe that more companies will incorporate Blockchain, Crypto, and Web 3.0 into their ecosystems. Governments can pay attention to the blockchain industry as a whole. Innovations in blockchain technology extend far beyond investments. Blockchain technology can create immutable and indestructible ledgers which can help in record-keeping, distribution of information and secured information storage,” Karkara added.

Investors and other industry leaders are hopeful that the government will create a robust framework that can deter bad actors and provide relief for entrepreneurs and investors who are actively adding Crypto to their portfolios. Moreover, they say that the crypto awareness campaign is a welcome move by the government.

“The recent announcement by the government about launching a crypto awareness campaign paired with a progressive taxation policy would go a long way in putting India on the forefront of the digital and financial technology space,” stated Karan Ambwani – India Lead at dYdX Foundation, a body fostering decentralized governance.