Indian finance minister ignores crypto industry’s budget tax plea

IndianFinance Minister Nirmala Sitharaman’s 2024 Union Budget speech on July 23 failed to mention cryptocurrencies, leaving the existing tax regulations unchanged.

Local crypto advocates pushed for a reduction in the current 1% tax deducted at source (TDS) to 0.01%, which has been blamed for the Indian industry’s lackluster performance.

However, the current crypto taxation rules in India were left unchanged on Tuesday’s budget presentation, the first since Prime Minister Narendra Modi was elected for a third term in office.

The move to keep taxes unchanged means that the government does not see crypto as a serious business in India yet, said Sathvik Vishwanath, CEO of local exchange Unocoin.

“[The government] compares [crypto] to gambling and betting,” Vishwanath told Cointelegraph.

Introduced in Sitharaman’s 2022 Budget speech, India levies a 30% flat tax on crypto profits, along with a 1% TDS on transactions.

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This tax regime is seen as one of the strictest in the world and is believed to be responsible for plummeting trading volumes in local exchanges.

Since the tax measures were put in place, trading volumes in Indian exchanges tanked by 97% while active users dropped by 81%, according to a report by the National Academy of Legal Studies and Research (NASLAR).

NASLAR’s research found that the national treasury is losing approximately 59 billion Indian rupees ($700 million) in tax revenue due to diminished activity on India’s leading exchanges.

However, its earnings could potentially be doubled if crypto TDS was reduced to 0.01%.

While the crypto industry was left hanging, Sitharaman proposed a TDS reduction from 1% to 0.01% for e-commerce operators.

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Sitharaman was widely expected to ignore the industry’s request for a drop in tax, as the government has issued numerous warnings against the dangers of trading crypto.

For one, the Reserve Bank of India, the nation’s central bank, has historically taken a negative stance against them.

The RBI in 2018 banned financial institutions from servicing the crypto industry, but this ban was overturned by the Supreme Court in 2020.

In its May 2024 bulletin, the RBI warned users of the speculative nature of crypto assets, a consistent view that has remained unchanged for more than a decade .

In its bulletin, the central bank delved into decentralized finance (DeFi), stating that DeFi activities are driven more by speculative motivations than by transactions representing economic value.

However, the local industry remains hopeful that local taxes will one day reduced.

“Our country will need more developed countries promoting crypto, announcing ETFs or making it legal tender before we can make a strong decision to amend taxation for the industry,” Vishwanath said.

Despite the harsh local taxes, India is a global leader in cryptocurrency adoption .

The nation topped blockchain analytics firm Chainalysis’ crypto adoption index in 2023,

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