India maintains tax rate on crypto transactions despite calls for change

During the budget presentation for the fiscal year 2024/25, India’s Finance Minister Nirmala Sitharaman announced that the tax rate at source (TDS) for cryptocurrency transactions will remain unchanged at 1%. This announcement came five months after the interim budget presentation in February, which had maintained the rate.

Concerns about the impact of the regulations

The regulation passed by Parliament in April 2022 led to a sharp decline in trading volume in the Indian crypto industry, raising concerns about the impact of the regulation on market activity.

Industry representatives have since called for a reduction in the TDS rate from 1% to 0.01% and the introduction of a progressive tax regime on profits. They have also stressed the need to offset losses against profits to create a fairer tax framework.

Despite these calls, the 1% rate remains in place. The flat 30% income tax rate on crypto-asset income, as outlined in the interim budget, also remains in place. This policy applies to both crypto trading and investment.

It has long been expected that the tax regime would be maintained

Finance Minister Sitharaman stressed that the decision reflects the government’s cautious approach. Nischal Shetty, CEO of India’s largest exchange WazirX, had predicted in September 2023 that the government would likely retain the current tax regime.

Sumit Gupta, the founder and CEO of CoinDCX, expressed his concerns about the impact of the tax regime on the local crypto industry in an interview last month. He noted that the high tax rate has significantly reduced liquidity and encouraged investors to move to offshore platforms.

However, the recent budget presentation did remove taxes for investors, a move welcomed by CoinDCX. Gupta stressed that this measure would strengthen the local crypto industry, which currently includes over 1,000 startups. However, the retention of the TDS rate was not a positive development. Gupta concluded by stating:

“For investors, we had expected some relaxation in the tax framework in this budget. We will continue to push for rationalisation of the tax framework, which includes reducing TDS to 0.01%, easing losses on VDA transactions and adjusting the 30% capital gains tax.”