India Unlikely to See Crypto Tax Reduction in Tuesday's Budget

• While some policy officials hold out hope for a reduction in the crypto tax, most experts don't expect any changes.
• The industry's primary desire is to see the 1% tax deducted at source reduced to 0.01%.

India is unlikely to change its controversial tax-deducted-at-source (TDS) policy on crypto transactions when Finance Minister Nirmala Sitharaman reveals her full budget for 2024-2025 on Tuesday, experts said.

The budget is the first since Prime Minister Narendra Modi was elected for a third straight term. What's different this time is Modi's Bharatiya Janata Party (BJP) unexpectedly failed to secure a majority, needing to form a coalition government. The budget is likely to take account of his alliance partners, who have already demanded in excess of $15 billion over the next few years.

For the crypto industry, the TDS is a standout issue. The Bharat Web3 Association (BWA) has asked for the tax to be cut to 0.01% from 1% ever since it was announced two years ago. The industry body has presented data from multiple sources, including a think tank study that provided evidence to support a reduction. Among other arguments, it says lowering the rate will retain more transactions onshore, leading to higher revenue for the government.

"I don't foresee the 1% TDS being reduced in the near term, despite it being necessary," said Punit Agarwal, founder of crypto taxation platform KoinX. "The current rate leads to capital flight to international exchanges and DEXs, ultimately causing a loss to the government."

Other demands include establishing progressive taxes on gains instead of the flat 30% rate, and allowing losses to offset gains. They have also pushed for multi-agency regulation.

Despite the surprise election result introducing the need to satisfy coalition partners and last week's $230 million hack of crypto exchange WazirX, which may have pushed crypto down the list of priorities, BWA officials said they are hopeful that at least one of their three requests would receive favor.

The BWA is also looking for some "direction in terms of regulation." India does not have a comprehensive crypto regulation, though senior Finance Ministry officials have said they intend to submit draft legislation to parliament.

What's giving them hope is that the association was invited for talks with the ministry as part of the pre-budget consultations, unlike in 2023 before February's interim budget. However, ministry officials "did not give us any sense or comment at all," said R Venkat, a Bharat Web3 Association member who attended the meeting. The Finance Ministry declined to comment.

"High TDS may have driven retail investors to offshore exchanges, but the government's focus on stringent regulation suggests that a rate reduction is unlikely," said Rajat Mittal, a Supreme Court crypto tax counsel. "The need for robust oversight in the digital asset space is viewed as more critical than alleviating industry concerns."

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CORRECTION (July 22, 12:01 UTC): Corrects penultimate paragraph to remove reference to 2022.