The Indian cryptocurrency and web3 industry association, Bharat Web3 Association (BWA), recently submitted its wishlist for the 2024 budget to the finance ministry. This time, the industry calls for tax rationalisation and regulatory tightening regarding offshore exchanges.
The finance ministry has been blocking the URLs of offshore exchanges not registered with the Financial Intelligence Unit-India (FIU-IND) and sending show-cause notices to them. This comes when the Indian crypto sector has already begun to see some regulatory green shoots.
Infrastructure suppliers like Polygon and Biconomy, cryptocurrency exchanges like CoinDCX and CoinSwitch, virtual gaming platform Hike, and other Web3 participants like Tax Nodes and Liminal are among the present members of BWA.
Indian cryptocurrency players want tax cuts.
Re-examining the flat rate of 30% applicable to income from the transfer of VDAs, and reduction in the rate of TDS on the transfer of VDAs (virtual digital assets) to 0.01% from 1%; specifically including foreign exchanges in the scope of TDS.
The current tax system “has not achieved the intended purpose of enabling VDA transactions to be monitored,” according to the note. The statement continued, “Instead, it encourages Indians to shift such activities to other easily accessible channels that make it impossible to monitor the same.”
There is a 30% tax on revenue from virtual digital assets (VDAs), which include cryptocurrency tokens, non-fungible tokens (NFTs), and other tokens. Every transaction that exceeds Rs 10,000 is subject to an additional Tax Deducted at Source (TDS) of 1%, which means that a sizable amount of capital gets trapped in the cycle every day. Reclaiming these TDS amounts is limited to filing tax returns.
CoinDCX co-founder Sumit Gupta said that to evade these taxes, over 90 per cent of the traffic from Indian crypto exchanges has moved to offshore exchanges.
Effects on small companies
Cryptocurrency unicorn CoinDCX made similar recommendations to BWA’s in a different pre-budget recommendation letter distributed last month.
Two of its main demands are to reduce the transfer rate of VDAs from thirty per cent to one-half, in line with other assets like securities, and to include offshore exchanges in the TDS mandate.
CoinDCX stated that it would “specifically include offshore platforms in the scope of the TDS mandate under Section 194S to ensure a level playing field between Indian and offshore exchanges.”
The nation is proud to have a “thriving developer community that is contributing substantially to the development of the Web3 ecosystem, globally,”According to the letter
According to reports, 11% of the world’s Web3 talent resides in India. The government exchequer receives less revenue when entrepreneurship, innovation, job creation, wealth creation, and foreign investment are discouraged. The entire industry is subjected to a high rate of 30%, along with the prohibition of offsetting losses. Thus, it promotes migration outside of India,” the letter stated. CoinDCX further noted that small businesses will be “burdened” and faced with challenges by this substantial capital gains tax.
The report stated that the VDA trading sector faces a disadvantageous position, deterring potential growth and investment despite the government allowing a lower tax regime in the share trading business.
Even so, industry participants might expect little changes soon because 2024 will be an election year, and this is only a vote on account, not a comprehensive budget.
Chief public policy officer of CoinDCX and director of BWA Kiran Vivekananda stated that the government has already taken some action to bring offshore entities under FIU-IND and that he expects little from the union budget because elections are coming up in April.
The requests are more justified this year. We needed more information last year to support the effect on how businesses. I believe the G20 talks have also contributed to the industry’s general understanding that this is more than just conjecture.Kiran Vivekananda, Chief Public Policy Officer, CoinDCX and Director of BWA