As India prepares to unveil its Union Budget in February, the country’s burgeoning crypto sector is urging policymakers to reconsider current tax regulations, which industry insiders believe hinder growth and innovation. The push for reform comes amid tightening regulatory compliance and rising concerns about the long-term sustainability of the existing framework.
Key Takeaways
- •Current crypto tax policies impose a flat 30% tax on gains and a 1% tax deducted at source on all transactions.
- •Industry leaders argue that the taxes, especially at the transaction level, discourage onshore activity and advanced compliance efforts.
- •Officials believe that reforms could foster better compliance and bolster domestic digital asset markets.
- •Stricter enforcement measures are prompting exchanges to seek balanced regulatory approaches to protect investor interests while promoting innovation.
Revisiting the Indian Crypto Tax Framework
India’s current tax regime for cryptocurrencies, introduced in 2022, enforces a 30% tax on any gains, alongside a 1% tax deducted at source applicable to most transactions, regardless of profitability. Significantly, losses from trading cannot currently offset gains, further complicating traders’ and investors’ strategies. The industry contends that such a regime stifles innovation and liquidity by making compliance overly burdensome and discouraging participation in the onshore market.
Executives from leading domestic exchanges emphasize that the existing tax measures, especially the transaction-level levies, do not align with the evolution of global digital assets markets nor India’s own progress in regulating the sector. Nischal Shetty, founder of WazirX, states that the upcoming Budget offers a prime opportunity to recalibrate policies to foster transparency and innovation.
“India has a chance to refine its framework to better support compliance while encouraging growth,” Shetty said. He advocates for a thoughtful reduction in the transaction-based TDS and a reassessment of loss-set-off rules to restore liquidity and sustain economic activity domestically.
Similarly, ZebPay’s COO Raj Karkara believes that a rational approach to reducing taxes and refining the existing 1% TDS could make the sector more attractive and foster a healthier onshore ecosystem. Sectors such as Binance’s APAC lead, SB Seker, also suggest that focusing on capital gains with limited loss offsets and eliminating excessive transaction levies would signal a move away from a punitive “tax-and-deter” regime, fostering responsible investment and growth.
Challenges from Increased Enforcement
Amid calls for reform, Indian authorities have intensified compliance requirements for crypto platforms. Recent directives from the Financial Intelligence Unit mandate stringent KYC procedures, including live selfie verification, geolocation tracking, and bank account authentication. Concurrently, the income tax department has raised alarms about the challenges posed by offshore exchanges, private wallets, and decentralized finance tools in tracking taxable crypto income, highlighting ongoing enforcement efforts.
These developments underscore the tension between regulatory oversight and the sector’s growth ambitions, with many industry stakeholders advocating for balanced reforms that support innovation while ensuring compliance and investor protection.