As India prepares for the annual Union Budget presentation, scheduled for February, domestic virtual digital asset (VDA) platforms and industry bodies are intensifying their lobbying efforts for a comprehensive overhaul of the country’s stringent crypto taxation regime, implemented in 2022.
The current framework imposes a flat 30% income tax on gains derived from the transfer of VDAs, irrespective of the holding period. Furthermore, it explicitly disallows offsetting losses incurred in one crypto asset against gains made in another, a measure widely criticized for stifling legitimate trading activity. A 1% Tax Deducted at Source (TDS) on all transactions above a minor threshold adds to the liquidity crunch and compliance burden, particularly for high-frequency traders.
Industry associations, including the Blockchain and Crypto Assets Council (BACC), argue that this onerous taxation policy has led to an exodus of users and trading volumes to foreign, unregulated exchanges. Estimates suggest that trading volumes on domestic platforms have plummeted by 70-90% since the introduction of the rules.
The core demands presented to the Ministry of Finance include three critical changes:
1. **Reduction of Tax Rate:** Lowering the 30% tax slab to a more reasonable rate, ideally aligning it with the taxation of listed securities or capital gains (e.g., 15% to 20%).
2. **Loss Offsetting:** Allowing traders to offset losses across different crypto assets, thereby treating VDAs more akin to other asset classes for tax purposes.
3. **TDS Review:** Either abolishing the 1% TDS or substantially reducing it (to 0.01% or 0.05%) to minimize friction for active traders.
Platforms contend that a modernized and balanced tax approach would encourage liquidity to return to the regulated domestic ecosystem, boosting overall government revenue collection and fostering responsible innovation within India’s nascent Web3 sector.
Source: Indian crypto platforms push for tax rethink ahead of February budget
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