India is unlikely to see any reduction in the controversial tax-deducted-at-source (TDS) rate on cryptocurrency transactions in the upcoming budget announcement for 2024-2025. Finance Minister Nirmala Sitharaman is set to present the budget on Tuesday, but recent developments suggest the current 1% TDS rate will stay.
Election Results and Coalition Politics Influence Budget
The upcoming budget is the first since Prime Minister Narendra Modi secured a third consecutive term. However, his Bharatiya Janata Party (BJP) unexpectedly fell short of a majority, necessitating a coalition government. This shift has introduced additional demands on the budget, with Modi’s alliance partners requesting over $15 billion in funding for various projects.
Crypto Industry’s Hopes for Tax Reduction Diminish
The Bharat Web3 Association (BWA) has been advocating for a reduction in the TDS rate from 1% to 0.01% since it was introduced two years ago. The BWA argues that a lower tax rate would help retain more transactions onshore and increase government revenue. The association has presented data supporting this claim, including studies suggesting that high TDS rates drive capital flight to international exchanges and decentralized platforms, resulting in a loss of potential revenue for the government.
Recent Developments and Security Concerns
The crypto sector’s hopes for tax relief have been further dampened by last week’s $230 million hack of the WazirX exchange. This incident, coupled with the surprising election results, has likely shifted focus away from crypto tax reform. Despite these challenges, the BWA remains hopeful that at least one of its three requests—reduced TDS, progressive taxation on gains, or multi-agency regulation—might be addressed.
Regulatory Framework Still in Development
Currently, India lacks comprehensive crypto regulation, though Finance Ministry officials have indicated that draft legislation may soon be presented to parliament. The BWA was invited for pre-budget consultations, a positive sign compared to the previous year, but the ministry did not provide any concrete feedback.
Experts suggest that while high TDS rates may push retail investors towards offshore exchanges, the government’s emphasis on stringent regulation may outweigh the industry’s call for a rate reduction. Rajat Mittal, a Supreme Court crypto tax counsel, noted that robust oversight in the digital asset space is likely to be prioritized over addressing tax concerns.
