India’s crypto industry is pressing for tax relief ahead of the Union Budget, warning the current framework is pushing trading offshore. A KoinX report said nearly three-quarters of Indian crypto volume flows through foreign platforms, about $6.1 billion (₹51,252 crore), leaving 27.33% on domestic venues. Finance Minister Nirmala Sitharaman presents her ninth consecutive budget on Sunday this year. Leaders say taxing transactions without recognising losses creates friction rather than fairness for retail users. Bharat Web3 Association wants lower TDS, loss set-offs, and a regulatory mechanism.
Tax policy becomes the bottleneck for onshore liquidity
The pushback traces to February 2022, when India introduced a 30% tax on crypto income with no deductions beyond acquisition cost. Losses could not be set off against other income, and gifted virtual digital assets would be taxed at the recipient. A 1% Tax Deducted at Source on VDA transactions squeezed liquidity providers. Industry executives describe the 1% TDS as a liquidity drain that weakens onshore markets. In the 2025 Budget, undisclosed gains fell under Section 158B, allowing audits back 48 months, and non-disclosure can trigger a 70% penalty.
Industry groups are pitching rationalisation, not rollback. A CoinSwitch survey of 5,000 participants found 66% consider the regime unfair and 53% “very unfair,” while 59% said participation fell. Over 80% want changes: 48% seek a lower rate than 30%, 18% want loss set-offs, and 16% want reduced TDS. Most respondents, 61%, want crypto taxed like equities or mutual funds. CoinSwitch co-founder Ashish Singhal said cutting TDS from 1% to 0.01% and raising the threshold to about $5,444 (₹5 lakh) could preserve traceability while easing burdens.
Enforcement strain and the cost of regulatory limbo
Compliance voices argue the structure is missing its own objectives. CA Sonu Jain of 9Point Capital said it pushed VDA activity offshore, where transactions are harder to track or regulate, while compliant users on regulated platforms face heavier scrutiny. Jain’s proposal is to replace 1% TDS with information-based reporting such as Statement of Financial Transactions. He urged revisiting loss treatment under Section 115BBH to align with shares and securities, and said a trust-based approach with consumer protection rules is essential. He said clear rules would restore confidence quickly.
Tax authorities flagged enforcement constraints to Parliament’s finance committee, citing borderless transfers, pseudonymous addresses, and activity outside regulated banking channels. The story contrasts India with Japan and Hong Kong, where licensing aims to attract businesses. Economic Affairs Secretary Ajay Seth acknowledged India is reconsidering its stance, but a discussion paper expected in September 2024 remains delayed. Raj Kapoor warned that opposition without a regulatory pathway pushes innovation, capital, and talent offshore. Despite collecting approximately $5.2 million (₹437.43 crores) through crypto taxation, the report says user protections are thin.
