Budget 2024 Expectations: What the Web3 and Crypto Ecosystem Wants Ahead of the upcoming Union Budget 2024, Web3 startups want the government to revisit the TDS, provide regulation and legal clarity, and a fertile zone to nurture
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In February 2023, the Indian government declared a 30 per cent tax on digital assets, as the first move towards regularisation. However, the 2023 Budget did not address the crypto, blockchain and the blockchain ecosystem at all.
Ahead of the upcoming Union Budget 2024, Web3 startups want the government to revisit the TDS, provide regulation and legal clarity, and a fertile zone to nurture.
The Finance Act 2022 saw the government introduce TDS on VDA (Virtual Digital Assets) through section 194S. This requires a 1% TDS deduction by any individual/HUF while buying any VDA. Estimates show that the government bore a loss of USD 420 million in potential revenue due to the migration of Indian crypto traders to overseas platforms. "The taxation around digital assets, especially the TDS on transactions should be revisited by the relevant authorities. The exemption limit short-term capital gain tax should be relaxed to make digital assets more user friendly," shares Om Malviya, President, Tezos India.
"We propose offering tax breaks for the development of blockchain security infrastructure and the implementation of advanced security protocols. This incentive will attract investment, generate high-skilled jobs, and solidify India's position as a global leader in secure digital asset custody. Just like stocks, users should be allowed to offset losses related to digital assets which will encourage more startups to enter this space," shares Manhar Garegrat, Country Head, India & Global Partnerships, Liminal Custody Solutions.
Ashish Singhal, Co-founder and Group CEO, PeepalCo suggests reducing the Tax Deducted at Source (TDS) on VDAs, from 1 per cent to 0.01 per cent, allowing offsetting and carrying forward losses from the sale of VDAs, and treating income from VDAs on par with other capital assets. "Reducing the tax arbitrage that exists today will also help stem the flight of capital, consumers, investments, and talent, as well as dent the grey economy for VDAs," he shares.
Clarity in framework
Manhar Garegrat, Country Head, India & Global Partnerships, Liminal Custody Solutions feels that the current broad definition of Virtual Digital Assets (VDAs) in Notification no. 74 of 2022 needs to be more nuanced and shares "We urge the government to amend the VDA definition, explicitly excluding tokenized assets with proven underlying value, similar to established precedents like gift card exemptions. This targeted revision will foster a dynamic and inclusive digital asset ecosystem."
Thakral feels that the framework should address taxation complexities and establish clear guidelines for income and transactions.
"Considering the positive strides made in discussions at the G20 summit, we believe that it is crucial to establish a regulatory framework," shares Rahul Pagidipati, CEO, ZebPay.
Free Economic Zone and Sandbox
Garegrat adds "The government should look at creating special economic zones for Web3 startups and offer tax holidays to startups during initial years so that entrepreneurs can focus on innovation and product development without worrying about cash flows." He further urges the government to create equal opportunities for Web3 projects by enabling active participation in government sandboxes.
"We need tax incentives and sandboxes to nurture these seeds into thriving startups. Sandbox initiatives need protection to foster experimentation. This will create a new generation of jobs, propel India into the global DeFi and blockchain space, and unlock economic growth," adds Thakral.