Cryptocurrencies: Big Expectations: What the Indian Crypto Industry Hopes for in Budget 2023

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The crypto industry is expecting a lot from the upcoming Union budget of 2023. The industry hopes that FM Nirmala Sitraman will bring a number of changes, especially the way Virtual Digital Assets (VDAs) are classified and taxed. The 2 major demands are:

1. The 1% withholding tax (TDS) on Crypto asset sale transactions should be removed. This tax causes investors to lose capital with every transaction and discourages potential investors from participating in this market, resulting in loss of capital investment in crypto assets.

2. The current tax architecture should be modified to allow offsetting and carry forward of losses in equity-like/derivative ARVs. The 30% threshold was set in response to comparisons of digital assets with highly speculative avenues such as gambling, betting, etc. However, VDAs are similar to trading in securities and should therefore be treated the same with respect to taxation and compensation benefits.

According to Delhi-based think tank The Esya Centre, the 30% tax and 1% TDS led to cumulative trading volume worth Rs 32,000 crore shifting from Indian crypto exchanges to foreign exchanges between February and October 2022. The study also estimated that the current tax architecture could result in a loss of around Rs 99.3 trillion in local trade volume over the next four years.

Additionally, the use of international exchanges raises data privacy concerns, as user data is stored overseas with less recourse for Indian users. The government is also losing potential tax revenue and going against current policy to improve the ease of doing business.

Optimizing these taxes will level the playing field for Indian exchanges and be in line with government policies of Atmanirbhar Bharat and Make in India.

India is for the first time president of the G20 and will remain at the head of this influential grouping for a year. The G20 offers a unique platform that brings together the world’s major developed and emerging economies. As India deftly navigated the global pandemic and the recent Ukraine crisis, the world took notice of India’s approach. PM Modi and FM Sitarman have said many times that crypto regulation should be a global effort. The G20 Presidency gives India a unique opportunity to set the global crypto regulatory agenda, as what is adopted by G20 countries will set the tone for the rest of the world. (The author, Rajagopal Menon, is Vice President of WazirX)

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