The crypto tax front is currently undeniably complicated for new investors and traders entering this ecosystem.
From unclear tax anomalies to additional TDS on crypto transactions, there’s already a lot for people to worry about. Without a doubt, crypto enthusiasts have high hopes for the Union Budget 2023.
There are already high expectations as the budget approaches. The first agenda item that appears to be long overdue is the regulation of the cryptocurrency market.
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Government’s Stance on Crypto Yet
Bitcoin and other digital currencies have been in existence for more than a decade. Despite this, the government is still undecided about whether or not to regulate the market. 2023 appears to be the year when a decision should be made on this front.
With the introduction of the e-rupee (India’s very own CBDC) and the prospect of a 30% tax on crypto gains, the market appears to be more than ready to establish crypto regulations. Even though the taxation portion of the Union Budget 2022 appeared to be more than practically reasonable, it was still welcomed due to the industry’s nationwide recognition.
Regulations Implemented on Crypto
Implementing regulation may also result in cryptos and financial instruments such as stocks coexisting. And if that happens, the crypto tax regime in India may become very similar to that of traditional stocks.
From July 1, 2022, we saw a 1% tax deducted at source (TDS) levied on payments to VDAs or cryptos exceeding $10,000 per year (Rs.50,000 in certain cases). On June 21, the Central Board of Direct Taxes (CBDT) also announced changes to the IT Rules governing the submission of TDS returns in Forms 26QE and 26Q. Even if a taxpayer’s total income is less than 2.5 lacs, the crypto gains are still taxable, and the TDS is still deductible.
Impacts of Crypto Taxation
According to the Cryptocurrency Adoption Index 2022, crypto ownership in India is nearly double the global average. However, because of the 1% TDS, most traders have shifted to foreign exchanges. This has also resulted in a drop in volume on Indian exchanges of nearly 95-97%. The government will have a difficult time tracking and taxing crypto-related investments with such a significant drop in volumes.
Expectations from Budget 2023
Given the large number of crypto users in India, the 2023 Union Budget is likely to be more favorable to cryptocurrencies than the current tax regime. Not only would this be more welcoming to newcomers to the ecosystem, but it could also lead to a reduction in the TDS on Indian crypto exchanges, where it could potentially be reduced to 0.01%.
Because of the ambiguities in tax compliance for other virtual digital assets, we may see a separate regulatory bill covering income from NFTs or staking. Harmonizing the tax framework with stock market transactions, such as the benefit of a lower tax rate for long-term investments and the benefits of set-off of losses and loss carry-forward, are some important things to look for in the upcoming budget.
India currently has over 20 million cryptocurrency investors. The country is home to approximately 10% of the world’s Web3 talent and has the potential to make a significant impact in the industry. However, the current tax regime discouraged investors from continuing to trade crypto in India, which is why we saw a large number of accounts being transferred to offshore crypto exchanges.
With India taking over the presidency of the G20 summit, we may be moving towards a more favorable ecosystem for cryptocurrency in general. The announcements in the budget regarding cryptocurrency taxation for 2023 will have a significant impact on how the industry is perceived in the future. If you want to file your crypto tax and manage your crypto portfolio without any hassle, try using an online service like Binocs, which will automatically calculate your tax and file it on time without any penalties.