New Delhi, February 1, 2024 – India’s Finance Minister, Nirmala Sitharaman, presented the budget in parliament on Thursday, maintaining the controversial tax deducted at source (TDS) policy that has gripped the country’s crypto industry for the past two years.
The budget announcement came with little surprise as expectations were low for changes to the stringent taxes on crypto transactions, including a 30% tax on profits and a 1% TDS on all transactions. Despite efforts from the domestic crypto industry and a study from a think tank advocating for a reduction in the TDS, the government chose to stay the course.
In an election year, the finance ministry typically presents an interim budget to fund its expenses for a short time before a full budget is expected in July after the general elections. With India gearing up for elections in the next two months, the finance minister announced no changes in taxation, both direct and indirect.
Prime Minister Narendra Modi and the Bharatiya Janta Party are predicted to return to power, according to polls. This political landscape may have influenced the government’s decision to maintain the status quo in the budget, with a more comprehensive review of policies expected after the elections.
The crypto industry in India has long pressed for a reduction in the 1% TDS, a measure in place since it was first introduced two years ago. Crypto exchanges in the country have been grappling with the impact of this tax, urging the government to reconsider and reduce the burden.
Rajagopal Menon, Vice President of cryptocurrency exchange WazirX, emphasized the importance of supporting domestic crypto projects, stating, “Digital public infrastructure and the PM’s aspiration for [innovation] will benefit from integrating provisions for long-term financing of domestic crypto projects given how India is at a pivotal phase in the crypto revolution.”
Menon added, “We expect these developments to factor in the government’s agenda along with our existing requests for a reduction in TDS rates to 0.01% and offset of losses for traders.”
The 1% TDS has led as many as five million crypto traders to conduct their transactions offshore, resulting in an estimated loss of $420 million in government revenue since its implementation in July 2022, according to a study by the Esya Centre.
While the government has not reduced the tax in the past two years, recent actions against offshore crypto exchanges have brought crypto activity back to Indian exchanges. The industry remains watchful for any future developments that may shape the regulatory landscape for cryptocurrencies in India.