The entire cryptocurrency ecosystem in India waited with bated breath for announcements on budget 2024. However, when India's Finance Minister Nirmala Sitharaman finally revealed the content of the budget on Tuesday, July 23, many would have been left disappointed.
Expectations from the Crypto Sector
In the lead up to the announcements, the entire country was awash with debates and conversations on whether or not there would be modifications to the existing crypto tax regulation. Many crypto experts were frustrated by issues such as high transaction tax and the difficulty faced when attempting to offset losses against gains.
These concerns have greatly impacted the penetration of new investors and innovators into the Indian crypto industry. The imposition of crypto taxes also saw the number of crypto transactions decline as users shifted to offshore exchanges. Many were of the opinion that the government would reduce to 0.01 percent the tax deductible at source on transfers of virtual digital assets under Section 194S.
Government Support for Indigenous Projects
Other expectations from the crypto community in India also included the government allocating funds for Indian blockchain projects that demonstrate innovation and possess real world utility. The community expected that such financial stimulation from the Indian government would further encourage innovation within the local crypto and Blockchain ecosystem.
The industry also emphasized the need for a comprehensive regulatory body specifically for crypto and blockchain sectors, which would provide clarity and unlock hidden opportunities and applications on a global scale, strengthening India's position as a leader.
Implications of Budget 2024 on Crypto Sector
Following the Minister’s Budget 2024 announcement, Edul Patel, who is the co-founder and CEO at Mudrex, is of the opinion that the minister’s decision to leave things unchanged could have consequences. This is especially as regards to existing tax rates on virtual digital assets (VDAs), which he believes could have both positive and negative effects.
According to Patel, maintaining the status quo could potentially deter new investors from coming in, and slow the growth of crypto in India. He also said that the current tax regime could further bring down the scope for adoption and investment.
However, the Mudrex CEO is also of the opinion that maintaining the current rates “provides predictability for existing crypto investors which would in turn help support steady market growth”. And he is not the only one who shares this opinion.
The crypto tax regulations of the Budget 2022/23 mandated a 30% flat rate imposed on gains accrued from virtual digital assets (VDAs) or crypto assets, regardless of income tax slab rate. A further 1 percent tax deducted at source (TDS) was also imposed on all transfers of such assets.
Silver Lining for the Community
Beyond the disappointment from the crypto ecosystem in India that greeted the Minister's budget 2024 announcement, there were actually several changes made to capital gains and trading activities. The Minister announced that the tax rate on long-term capital gains for all financial and non-financial assets will rise from 10 percent to 12.5 percent. Also, the tax rate on short-term gains for certain financial assets will increase from 15 percent to 20 percent.
Budget 2024 is the seventh consecutive announcement made by Minister Nirmala Sitharaman, and the first in Prime Minister Narendra Modi’s new term. The budget mainly addressed major tax changes with a focus on employment creation.