Budget 2023: Crypto industry body calls for rationalisation of taxes, regulatory body

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Bharat Web3 Association (BWA), a newly formed cryptocurrency and web3 industry body, has written to the finance ministry sharing its concerns and recommendations on taxation and regulatory uncertainty ahead of the Union Budget 2023-24.

The industry body is expected to meet concerned officials from the Central Board of Direct Taxes (CBDT) and others next week, according to a source familiar with the developments.

The cryptocurrency industry in India is currently dealing with a number of issues, including rapidly declining trading volumes across exchanges, global volatility of crypto tokens since nearly the beginning of 2022, and, most recently, the collapse of the world's third largest crypto exchange, FTX, which has caused widespread distrust among retail investors.

In India, the situation has been exacerbated by the introduction of a new taxation regime earlier this year, which has resulted in an 85-90 percent decline in trading volumes on exchanges.

“The BWA aims to highlight the impact of the existing tax provisions such as TDS, tax on income from VDAs (virtual digital assets) and not allowing carrying forward of losses on the wider industry and share its inputs on suitable amendments which can help address the concerns of the government and at the same time allow growth of this sector,” a BWA spokesperson told Moneycontrol.

The association will also continue to focus on raising awareness of Web3 and blockchain-related innovations and research, the spokesperson added.

Gains from Virtual Digital Assets (VDAs), which include cryptocurrency tokens, Non-fungible tokens (NFTs), and others, are subject to a 30 percent income tax as of April of this year.

On July 1, an additional Tax Deducted at Source (TDS) was implemented. This quickly became a cause of concern for intraday traders, who were charged 1 percent TDS on all transactions exceeding Rs 10,000, resulting in a significant amount of capital getting stuck in the cycle on a daily basis. These TDS amounts can be claimed only when filing tax returns.

“The government had reached out to the association for its recommendations. The suggestions would be around the 1 percent TDS needing to go. If the purpose is to just track crypto transactions, it could be done with a 0.1 percent TDS as well. And, the 30 percent tax also needs to be rationalised to bring it on par with how other securities and assets are taxed,” a second source in the know who requested anonymity told Moneycontrol.

“There is also an expectation to have regulations and a regulatory body like Sebi to oversee and defend the rules of the game,” the source added.

Inclusive industry body

BWA was set up earlier this month, four months after the Internet and Mobile Association of India (IAMAI) disbanded the previous cryptocurrency industry body Blockchain and Crypto Council of India (BACC).

The sector's level of uncertainty was cited at the time as a source of concern by IAMAI. Sources, however, claimed that the association and crypto industry members were increasingly at odds. According to Moneycontrol’s sources, the body was unhappy that the exchanges did not adhere to an internally decided code of conduct.

BWA's current prominent members include leading cryptocurrency exchanges CoinDCX, CoinSwitch, US-based Coinbase, WazirX, and ZebPay, as well as blockchain startups Hike and Polygon.

Ongoing discussions with the government will also include the promotion of Web3 and blockchain innovation. Given the turmoil in the cryptocurrency space, many of the top cryptocurrency exchanges have also diversified to include Web3-related innovations and offerings.

“The association has a focused approach on driving awareness through research to help keep pace with evolving technology, promoting dialogue between key stakeholders, encouraging Web3 and blockchain innovation and nurturing India's talent pool for an orderly growth of the Web3 ecosystem in India,” the association spokesperson said.

“Web3 is expected to contribute $1 trillion to India’s digital economy, our efforts will be dedicated towards unlocking this potential through collaboration with stakeholders, education, consumer protection, awareness, incentivising apprenticeship among others thereby facilitating setting up of an ecosystem which can support this high-impact sunrise sector,” the spokesperson added.