Will the Crypto Sector Continue to Bleed in India? Changes in the tax regime were announced in the Union Budget 2023. However, no announcements were made for the crypto sector
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The world of crypto is spiralling out of control after its fall. The fall of crypto was initiated after the Federal Reserve FOMC announced 'taper'. According to a report released by Huobi research, the prices of Bitcoin shot up due to the COVID-19 pandemic and loose monetary policies that were implemented in an attempt to save the market by the central banks. The taper witnessed an interest hike which is the usual course of action after taper periods which has had a massive effect on cryptocurrency and stock market growth.
The crash of FTX, one of the biggest crypto exchanges before crashing, had sent shockwaves throughout the crypto industry. Many crypto exchanges associated with FTX shut its operations due to going bankrupt.
Amid the tough conditions, the Union government announced 30 per cent tax on income from crypto assets and a one per cent tax deducted at source. Players from the sector had expected certain changes in the tax structure imposed on the crypto industry. Furthermore, the leaders of the crypto industry came together to form an association called the Bharat Web3 Association in order to convince the government to lower taxes. However, the revision of tax structure for the crypto sector was not a part of the Union Budget 2023.
The Union government has clarified penalty provisions in the recent Union Budget on crypto TDS impacting investor investment significantly. In addition to a hefty penalty, failing to pay TDS can land a person in prison for up to three months to seven years.
"Although the crypto industry was expecting relief from the aggressive tax introduced in the last budget, there was no mention of any changes related to crypto in the Finance Minister's speech. However, the government has clarified penalty provisions on crypto TDS. This will be a significant hit to investor sentiment. In addition to a hefty penalty, failing to pay TDS can land a person in prison for up to three months to seven years. Investors will need to re-evaluate their trading activities and ensure they are in compliance with all applicable TDS provisions," said Punit Agarwal, founder, KoinX.
According to a study by The Eysa Centre, a total of INR 32,000 crore in trade volume shifted from Indian crypto exchanges to foreign ones between February and October. The report suggested the current tax architecture may result in a loss of approximately INR 99.3 trillion of local exchange trade volume over the next four years.
"The Budget 2023 has been cold with tax rules and future position of India regarding VDA Virtual Digital Assets. Indian Government might focus on making digital rupee stronger by distributing it to more masses which will also help indirectly to increase education about blockchain and crypto to people of India," said Rajat Hongal, co-founder and CTO, DayFi.
The government has tightened regulations surrounding crypto. It remains to be seen what is the future of crypto is like in India. There have been discussions that have suggested India would be willing to regulate crypto if the other member countries of G20 are on-board.
