India Maintains Robust Crypto Taxation in Election-Year Interim Budget Announcement
India has maintained its high taxation on cryptocurrency transactions in its interim budget for the election year, despite expectations and efforts from the domestic crypto industry for a reduction. The budget, revealed by Finance Minister Nirmala Sitharaman in parliament, continues to impose a 30% tax on profits and a 1% tax deducted at source (TDS) on all transactions.
The decision to keep the stiff taxes comes amid a controversial TDS policy that has been impacting the crypto industry in India. Despite a study and push from a think tank for a reduction in the TDS, the government has not introduced any changes to this policy.
The budget announcement is a routine procedure in an election year, with the finance ministry typically presenting an interim budget to fund its expenses for a short period. A full budget is usually expected in July, following the election results. Current polls suggest that Prime Minister Narendra Modi and his Bharatiya Janta Party are likely to return to power.
In the early years (2013-2016), the Indian government showed initial interest in cryptocurrencies but also expressed concerns due to the lack of regulation and potential for misuse. This period was marked by increased scrutiny and regulations (2017-2018), including the Reserve Bank of India (RBI) taking a cautious and restrictive stance on cryptocurrencies. In April 2018, the RBI issued a circular effectively banning banks from dealing with cryptocurrency-related entities.
The Supreme Court of India overturned this ban in 2020, marking a significant shift in the country’s crypto landscape. Following this, the government began considering legislative developments and ongoing discussions (2021-2022) to regulate the sector. In 2021, the government planned to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, which aimed to provide a framework for the regulation of cryptocurrencies.
The high taxation on crypto transactions has had significant implications for the industry in India. According to a study by Esya, the tax has prompted as many as five million crypto traders to move their transactions offshore, costing the government a potential $420 million in revenue since its introduction in July 2022.
Despite the continued high taxes, there is optimism within the industry. Rajagopal Menon, vice president of cryptocurrency exchange WazirX, stated that the “digital public infrastructure and the PM’s aspiration for [innovation] will benefit from integrating provisions for long-term financing of domestic crypto projects given how India is at a pivotal phase in the crypto revolution.” He added that they expect these developments to factor into the government’s agenda, along with their existing requests for a reduction in TDS rates to 0.01% and offset of losses for traders.
The decision to maintain the high taxes on crypto transactions in the interim budget underscores the ongoing challenges and debates surrounding the regulation and taxation of the burgeoning crypto industry in India. As the country heads into an election, the future of these policies and their impact on the industry will be a key area to watch.
Angel Marinov is the Managing Editor at Coinlabz. With extensive knowledge of crypto payments and blockchain use cases, Angel is a trusted source of accurate and timely information