Reducing TDS on crypto transactions by 1 per cent could earn India over Rs 5,000 crore by 2027: Report

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Ahead of the announcement of India’s final budget for the fiscal year 2024-2025, a policy paper has outlined the reasons why the government should consider revising crypto tax laws in the country. The report has been collectively compiled by the Centre for Tax Laws, Hyderabad-based NALSAR University of Law, and some individual members of the crypto community in India. The report claims that India could gain Rs 5,144 crore through capital gains by 2027, provided the country revises its crypto laws.

Crypto Tax Laws of India

India is imposing a 30 percent tax on all crypto gains from 2022. In addition, it deducts one percent TDS (tax deducted at source) on every crypto transaction. The finance ministry wants to keep track of all crypto transactions, which are otherwise largely anonymous.

Regarding the 30 percent tax on crypto profits in India, the report states that it is the highest among comparable economies such as Ukraine, Canada, and the US. Commenting on the TDS law, the report states that no other country with significant exposure to virtual assets has imposed “such a withholding tax.”

The policy document states that a one per cent reduction in TDS could reduce overall TDS refunds, increase government revenues through capital gains taxes, and improve monitoring of transactions by virtual asset service providers (VASPs) operating in India.

“The tax impact is particularly harsh because India does not allow the set-off and carry forward of losses, which is particularly discriminatory even compared to other industry sectors in India,” the report said.

The impact of these taxes on crypto activities has led to a decline in the number of users joining crypto exchanges in India. Time and again, exchanges have complained that they have had to take cost-cutting measures to continue their businesses due to the low number of investors signing up on the platform.

The report showed that the number of active users in India’s crypto space declined by 81 percent in 2023 alone. Many are also turning to overseas exchanges to avoid these laws.

What is India’s stance on the crypto tax regime?

So far, the Indian government has not revealed whether it is considering amending crypto tax laws. Earlier this year, when Finance Minister Nirmala Sitharaman announced the interim budget ahead of the general elections in India, she skipped mentioning the crypto sector.

The government has so far ignored the crypto sector’s demands to reduce taxes.

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