- The infrastructure roadmap in the budget is the key to Viksit Bharat’s development
- The pharmaceuticals sector needs a major boost with more focus on R&D and innovation
- The focus of Budget 2024 could be transformative reforms for startups
- Experts say the budget should address these critical challenges facing the government and the public sector
1. Reduction of TDS on transfer of VDA
One of the primary requests is to reduce the rate of tax deducted at source (TDS) on transfer of virtual digital assets (VDAs) under Section 194S to 0.01%. Currently, the high rate of TDS at 1% acts as a deterrent to investors, leading to reduced market liquidity and participation. A lower TDS rate will encourage more transactions and promote a healthy trading ecosystem. Further, it is suggested to revisit the threshold limit for tax deduction under Section 194S, from Rs. 50,000 to Rs. 5,00,000 is made.
2. Setoff and carry forward losses
The crypto community, like other sectors, is advocating for the ability to accelerate and carry forward losses. Currently, losses from trading VDAs cannot be carried forward to offset future gains from VDAs or any other income sources, which discourages long-term investment and strategic trading. Allowing this flexibility will align the crypto market with other financial markets, promoting a more stable and investor-friendly environment.
The infrastructure roadmap in the budget is the key to Viksit Bharat’s development
The pharmaceuticals sector needs a major boost with more focus on R&D and innovation
The focus of Budget 2024 could be transformative reforms for startups
Experts say the budget should address these critical challenges facing the government and the public sector
3. Treatment of income from VDA
Equalization of income from transfer of VDA with existing sources of income is another significant demand. This means recognizing and taxing crypto income in the same way as traditional forms of income like stocks or mutual funds. This change will not only make tax compliance easier for crypto investors but also legitimize cryptocurrencies as a mainstream asset class. Reducing the tax rate in Section 115BBH from 30 percent to a rate comparable to assets in other industries would be a welcome change.
4. Call the regulatory body
In addition to the aforementioned financial arrangements, there is a growing demand to establish a dedicated regulatory body to govern crypto transactions. Such an organization would ensure transparency, protect investors and provide clear guidelines for compliance, thus promoting confidence and stability in the market.
While the industry welcomed the definition and inclusion of VDA in the Income Tax Act, certain provisions, such as the high rate of TDS and lack of offset, have led many Indian VDA users to move to non-compliant foreign exchanges to trade. This puts them at risk of losing their investment and breaking the law, resulting in less tax revenue to the government coffers.
RBI’s recent Financial Stability Report (FSR) of June 2024 highlighted decentralized finance (DeFi) and its implications for financial stability. This reflects global regulatory efforts to ensure a secure and stable environment for digital assets. As the Union Budget approaches, consolidating these insights by establishing a strong regulatory framework under SEBI or RBI can help mitigate stability risks in the DeFi and digital asset space, ensuring that India remains competitive in this evolving global market.
The crypto community is optimistic that the Finance Ministry will consider these proposals, which will lead to positive outcomes in the Union Budget 2024-25. Implementing these changes, particularly reducing TDS and allowing setoffs and carry forward losses, will encourage wider participation in the crypto market. A supportive regulatory environment is critical to spur innovation, as it empowers industry to transform existing businesses through the integration of blockchain technology.
(The author is VP, WazirX)
(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of the Economic Times.)
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