India’s Finance Minister, Nirmala Sitharaman, unveiled the Union Budget for 2024-25 on July 23, maintaining the current tax rate for the cryptocurrency industry and not directly addressing digital assets.
Budget Overview and Community Reaction to India’s Crypto Tax Regime The budget’s silence on cryptocurrency policy has created uncertainty within the Indian crypto community regarding the future of digital assets.
While the budget outlined nine priorities for economic growth, including agriculture, employment, and innovation, it did not specifically address cryptocurrencies.
Key announcements included the elimination of the angel tax for startup investors and the retraction of the 2% equalization levy.
Notable figures in the Indian crypto community, such as developer Vijay Saran, highlighted the budget’s silence on cryptocurrency, with Saran stating on X that there was “not even a single mention of Crypto.”
Sathvik Vishwanath, CEO of local exchange Unocoin, interpreted the government’s decision to keep taxes unchanged as an indication that the Indian government is stifling global innovation and investor interest.
The current crypto tax regime in India, introduced in Sitharaman’s 2022 Budget speech, imposes a 30% flat tax on crypto profits and a 1% Tax Deducted at Source (TDS) on transactions. The crypto community in the country is advocating for the TDS to be reduced to 0.01%.
This tax structure is considered one of the strictest globally and has been blamed for the significant decline in trading volumes on local exchanges.
According to a report by the National Academy of Legal Studies and Research (NASLAR), since the implementation of these tax measures, trading volumes on Indian exchanges have plummeted by 97%, while active users have dropped by 81%.
The research also found that the national treasury is losing approximately 59 billion Indian rupees ($700 million) in tax revenue due to diminished activity on India’s leading exchanges.
RBI’s Stance on Cryptocurrencies and Regulatory Impact The Indian government has continued to warn against the dangers of crypto trading in India, with Finance Minister Nirmala Sitharaman emphasizing the global crypto regulation gap. She cautioned that if one country implements crypto regulations and others do not, it may create a loophole for illicit activities.
Notably, the Reserve Bank of India’s (RBI) cautious approach to cryptocurrencies has influenced government policy. This stance was exemplified by the RBI’s 2018 directive prohibiting banks from facilitating crypto transactions, a move later overturned by the Supreme Court in 2020.
The implementation of stringent tax measures has also affected the growth of crypto adoption in India.
A study by the Esya Centre, a Delhi-based technology firm, revealed the unintended effects of these regulations. Their findings indicate a capital flight, with Indian investors moving approximately $3.852 billion (INR 32,000 crore) in digital assets to overseas exchanges since the tax implementation.
The Esya Centre’s analysis suggests that the stringent measures may be counterproductive, potentially reducing tax revenues and complicating transaction traceability. The analysis calls for policy recalibration and suggests the TDS be aligned with the existing 0.1% tax on securities transactions.
Despite these industry recommendations, the RBI has consistently warned users about the speculative nature of crypto assets, viewing private digital currencies as a potential macroeconomic risk. However, the Securities and Exchange Board of India (SEBI) holds a different opinion about cryptocurrency in the country. On May 16, SEBI proposed a collaborative effort to oversee crypto trading in India, in contrast to the RBI’s stance seeking a stablecoin ban.
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