Crypto asset and virtual digital assets (VDA) industry players were left high and dry as Finance Minister Nirmala Sitharaman made no mention of the sector during her Union Budget speech on February 1; a day after the Economic Survey 2023 raised concerns over the sector’s high volatility and need for global regulations.
The Finance Bill, however, mentioned an amendment in the Income Tax Act under section 271C, which will also penalise non-payment of crypto or VDA TDS (tax deducted at source). This would include a penalty amount equal to the unpaid TDS which will be imposed by a joint commissioner or a jail term for up to six months. In case of a delay in payment, this could amount to an interest rate of 15 percent per annum for late payment.
Explaining this, Ashish Singhal, Co-founder and CEO, CoinSwitch wrote on Twitter, “The TDS of 1 percent for crypto transactions remains as it is. But there is a clarification. The onus of deducting TDS has been on crypto exchanges or on the user (if using P2P or other means), but until now, there was no penalty for non-deduction.”
“Budget 2023 has now established that. This is to say, don’t try to avoid TDS by using offshore or non-compliant platforms. You may be penalised as per Section 271C of the Income Tax Act. If you are investing in crypto, use a tax-compliant platform,” Singhal added.
The Indian crypto sector took a hit last year when Sitharaman announced the government’s plan and deadline to start taxing income from crypto and virtual digital asset (VDA) gains at 30 percent and introduce an additional TDS of about 1 percent on every VDA transaction of over Rs 10,000; leading to liquidity crunch. In response, to evade taxes, investors were moving to foreign crypto exchanges.
This, coupled with the crypto tokens crashing globally led to Indian crypto exchanges losing over 85-90 percent of their trading volumes by the end of last year. The lack of regulations and the FTX collapse in November only added to the worry.
Finding no mention during the Union Budget, Sumit Gupta, Co-founder and CEO, CoinDCX said, “Was, obviously, hoping for a reduction in income tax on VDAs but that didn't happen. India has one of the highest taxes on VDAs in the world. This is causing Indian users to shift their investments overseas. Not good for our country and those building in this sector in India.”
According to Rajagopal Menon, Vice President, WazirX, this would mean that the trading volumes on Indian exchanges will continue to remain flat at rock bottom.
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"The Indian Union Budget 2023 made no changes to existing crypto taxes, leaving Indian crypto companies on the Stairway to Heaven. There is lingering uncertainty because of high taxes and a lack of a solid regulatory framework which are stifling progress in the industry," Menon said.
Hopes high on G20 presidency
Time and again India has been stressing on having a global regulatory framework to tackle the crypto concern. With its ongoing presidency in G20, the country is leading the way to come up with a global crypto policy.
Gaurav Dahake, CEO, Bitbns is hopeful that there will be some update for the industry by the second quarter of 2023.
"The industry participants already expected this and we are also expecting to see some positive development around G20 in Q2. Since India is holding the presidency this year, crypto is one of the key themes they are working on," he told Moneycontrol.
According to Dahake, the global coordination on crypto policy could lead to a uniform global taxation regime -- at least across the G20 countries.
The Economic Survey 2023 released on January 31 too strongly argued for a common global framework to regulate crypto assets citing the high volatility of the tokens, the recent FTX collapse and the different approaches being taken across countries to evaluate and regulate crypto.
According to the Survey, the market valuation of crypto assets fell from $3 trillion in November 2021 to less than $1 trillion in January 2023.
Meanwhile, crypto industry players in India were happy to see the first-ever mention of the crypto sector in the Economic Survey and believed that having regulations in place will solve it all.
In November, industry body Bharat Web3 Association (BWA) had written to the Finance Ministry in November seeking proper regulations and an appointed regulatory body to look into the matters of the sector, sources close to the development had told Moneycontrol.
BWA also highlighted the impact of the tax provisions and the need to restructure them. For instance, reduce TDS to 0.1 percent instead of 1 percent if the motive is to track such transactions.
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