The Indian government’s move to bring crypto transactions under a new tax regime has resulted in a Rs 158 crore (approx. $19 million) collection in tax deducted at source (TDS) on virtual digital assets (VDA) transfer till March 20. This figure can be taken as the final figure for the entire 2022-23 fiscal year, as the financial year ended on March 31.
Under the new tax regime, the government provided for a 1% TDS on VDA transfers exceeding Rs 10,000 (approx. $125) in a financial year. Additionally, all gains on VDA transfers were subjected to a 30% income tax. The 1% TDS began to be deducted from July 1, 2023. However, the first collection from July 1 to November 1, 2023, amounted to only Rs 60.46 crore ($7.4 million), was much lower than expected. Despite the industry’s demand and expectations, the authorities decided not to ease the tax rate, which industry representatives deemed to be too high.
To provide clarity and fill the regulatory vacuum, crypto transactions were placed under the Prevention of Money Laundering Act (PMLA). The move surprised many industry representatives who hailed the decision as a break from a complete regulatory vacuum. However, due to the high taxes and a hostile regulatory environment, India’s burgeoning crypto ecosystem has begun to cede the advantage to the neighboring and more friendly jurisdictions such as UAE and Singapore.
According to a Nasscom study, 60% of India’s 450 Web 3 startups are registered outside the country. The report also highlights that India is well-positioned to drive the Web 3 transformation, thanks to a large talent pool that accounts for 11% of the global market.
Despite the challenges, crypto adoption in India is growing. As per the latest Statista data, India has 150 million crypto users. By the end of 2023, India’s crypto adoption rate could become higher than that of the UK and the US, and 11% of Indians will have experimented with digital asset transactions.
When India hosted the G20 Finance Minister and Central Bank Governors meeting last month, discussions on crypto regulations were prominent. By the end of 2023, the powerful economic bloc is expected to have some kind of regulation in place for the cryptocurrency sector.
The high taxes and unfavorable regulatory environment have put the Indian crypto industry at risk of losing out to other countries. The industry is calling for the taxation on VDA transfers to be reduced to 0.05% to 0.1%, in line with industry demands, to prevent the loss of talent and drive Web 3 transformation. The government needs to listen to industry demands to foster a positive environment for the growth and development of the Indian crypto industry.
