India has chosen to keep its existing cryptocurrency tax rules for the 2024/25 fiscal year, disregarding persistent requests from industry leaders for lower rates. Finance Minister Nirmala Sitharaman confirmed this during her budget presentation on Tuesday
India’s New Budget Maintains 1% Crypto TDS
The budget continues the 1% tax deducted at source (TDS) rate on crypto transactions, a policy established in April 2022. This regulation has led to a significant drop in trading volumes within India’s crypto market, prompting industry advocates to propose reducing the TDS rate to 0.01% and implementing progressive taxation on gains. They also suggested allowing the offset of losses against gains to create a fairer tax system.
Despite these recommendations, the budget sticks with the 1% TDS rate and the flat 30% income tax on crypto earnings. Additionally, it increases the long-term capital gains tax from 10% to 12.5% and the short-term capital gains tax from 15% to 20%.
Impact on Crypto Trading
The consequences of these tax changes on crypto trading remain to be seen. However, removing the angel tax for all investors is viewed positively and is expected to attract more Web3 startups, boosting India’s startup ecosystem.
Stringent Policies for the Indian Crypto Sector
Sitharaman’s decision to maintain the current tax rates was anticipated due to the government’s numerous warnings about the risks of crypto trading. The Reserve Bank of India (RBI) has traditionally opposed cryptocurrencies, having banned financial institutions from servicing the crypto industry in 2018—a decision later overturned by the Supreme Court in 2020.
In a May 2024 bulletin, the RBI reiterated its stance on the speculative nature of crypto assets and criticized decentralized finance (DeFi) for being driven by speculation rather than real economic activity.
Future Prospects for India’s Crypto Industry
Despite the stringent tax regime, the Indian crypto industry remains optimistic about potential future tax reductions, possibly influenced by global trends such as other countries promoting or legalizing cryptocurrencies. India continues to lead in global crypto adoption, as evidenced by its top ranking in Chainalysis’ 2023 Global Crypto Adoption Index. The industry continues to advocate for tax reforms, aiming for a more favorable regulatory environment.
However, recent events such as the $234.9 million hack of the crypto exchange WazirX and the latest election results may have deprioritized immediate cryptocurrency regulation for the government.
