As the Indian government prepares to unveil the Union Budget, the crypto community is hopeful for reforms that will create a more favorable environment for virtual digital assets (VDAs). The current tax policies and regulatory frameworks governing VDAs in India have significantly hindered their growth and potential. To help this burgeoning market thrive, several key reforms are necessary. These reforms include reducing the TDS rate on VDA transfers, allowing the offset and carryforward of losses, equalizing the treatment of crypto income, establishing a dedicated regulatory body, and developing a supportive regulatory framework for Web3 technologies.

Reducing the TDS rate on VDA transfers

Currently, the tax deduction at source (TDS) rate on VDA transfers is set at 1%. This high rate significantly hampers market liquidity and participation, particularly for retail investors and small traders who make up a large portion of the crypto market. A high TDS rate discourages frequent trading, which reduces overall market activity, leading to lower liquidity and higher volatility.

In the upcoming Union Budget, it is crucial to address this issue by lowering the TDS rate on VDA transfers from 1% to 0.01%. This substantial reduction would lighten the tax burden on investors, encouraging more active trading and thereby enhancing market liquidity. Additionally, increasing the threshold limit for TDS applicability to Rs 5,00,000 would ensure that small investors are not unduly affected, promoting broader market participation.

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Allowing offset and carryforward of losses

Currently, the tax regime does not permit the offset and carryforward of losses from VDA trading, which discourages long-term investment in the crypto market. Unlike traditional financial markets, where losses can be offset against gains to reduce the overall tax liability, VDA investors face higher net taxes despite incurring losses.

To promote long-term investment and align the crypto market with other financial markets, the Union Budget should include provisions to allow the offset and carryforward of losses from VDA trading. This change would create a more balanced and fair tax framework, enabling investors to manage their portfolios more effectively and encouraging sustained investment in VDAs.

Equalising the treatment of crypto income

Income from virtual digital assets is currently taxed at a flat rate of 30%, which is significantly higher than the tax rates applicable to income from stocks or mutual funds. This disparity complicates tax compliance and undermines the legitimacy of crypto as a mainstream asset class.

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The Union Budget should aim to simplify compliance and legitimize crypto as a mainstream asset by proposing to tax income from VDAs similarly to income from stocks or mutual funds. Reducing the tax rate from 30% to a level comparable with other industries would create a fairer tax environment and encourage more investors to participate in the crypto market.

Establishing a dedicated regulatory body

The absence of a dedicated regulatory body for VDAs has led to regulatory uncertainty, which hinders the growth of the crypto market in India. A specialized regulatory body would ensure transparency, investor protection, and the smooth functioning of the market.

The Union Budget should propose the creation of a regulatory body under the Securities and Exchange Board of India (SEBI) or the Reserve Bank of India (RBI) to oversee crypto transactions. This body would be responsible for monitoring market activities, enforcing regulations, and protecting investors’ interests. Providing clear and consistent regulatory oversight would enhance trust and confidence in the crypto market.

Developing a supportive regulatory framework for Web3

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Web3 technologies, including digital assets and smart contracts, represent the next frontier of technological innovation. However, the lack of clear legal standards for these technologies in India has stifled their development and integration into various industries.

To foster innovation and fully realize the potential of blockchain technology, the Union Budget should include provisions for developing a supportive regulatory framework for Web3. This framework should include clear legal standards for digital assets and smart contracts, providing a solid foundation for the integration of blockchain technology into diverse sectors such as finance, healthcare, and supply chain management. By supporting the growth of Web3 technologies, India can position itself as a global leader in the digital economy.

As we eagerly await the upcoming Union Budget, it is crucial for policymakers to recognize the transformative impact of VDAs and implement these reforms to ensure the sustained growth and development of the crypto market. By reducing the TDS rate on VDA transfers, allowing the offset and carryforward of losses, equalizing the treatment of crypto income, establishing a dedicated regulatory body, and developing a supportive regulatory framework for Web3, India can unlock the full potential of virtual digital assets and blockchain technology. Creating a more inclusive and supportive regulatory environment through these much-needed reforms will help India harness the power of digital assets to drive economic growth and innovation. The crypto community eagerly anticipates these changes to propel the market into a new era of prosperity and technological advancement.

Source: economictimes.indiatimes.com

The post Budget 2024: What is needed to boost the crypto market in India? appeared first on HIPTHER Alerts.

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