The cryptocurrency industry is hopeful that the Union Budget will revisit the existing taxation structure on virtual digital assets (VDAs). Key expectations include the establishment of a self-regulatory body for the crypto and blockchain sectors, as well as the creation of sandboxes to bolster start-ups within the industry.
The imposition of taxes on crypto transactions had led to a decline in trading volumes on domestic platforms, with many users shifting to offshore exchanges. However, recent actions by the finance ministry, including issuing show cause notices to offshore exchanges and blocking URLs, have provided some relief for domestic crypto exchanges.
Industry leaders are urging the government to reconsider the Tax Deducted at Source (TDS) on VDAs, proposing a reduction from the current 1% to 0.01%. Additionally, they seek the ability to offset and carry forward losses from VDA transactions and advocate for treating income from VDAs on par with other capital assets. The objective is to minimise tax arbitrage, preventing the outflow of capital, investments, and talent while addressing concerns related to the grey economy in VDAs.
The players want a reevaluation of the flat rate of 30% applicable to income from the transfer of VDAs. Specifically, they suggest including foreign exchanges within the scope of Tax Deducted at Source (TDS) under Section 194S.
As part of their expectations, industry representatives also want the government to allocate funds for indigenous blockchain projects that demonstrate real-world utility and innovation. The anticipation is that such financial support will further stimulate innovation within the domestic crypto and blockchain ecosystem.
SRO framework
In pursuit of a standardised regulatory framework, industry participants emphasize the need for a robust self-regulatory body for crypto and blockchain sectors. Such an establishment, they argue, would provide clarity and unlock numerous opportunities and use cases on a global scale, positioning India as a leader in the sector.
To foster growth among startups in the crypto and blockchain space, stakeholders propose the creation of tax incentives and sandboxes. The envisioned sandboxes would offer a protected environment for experimentation, nurturing the growth of new ventures. This, they believe, will generate employment opportunities, propel India into the global decentralized finance (DeFi) and blockchain arena, and contribute to overall economic growth.
