The Union Budget 2024 has been eagerly awaited by the crypto industry, given its growing popularity in India. Crypto enthusiasts and investors are hoping for favourable tweaks to the tax structure to make investing in cryptocurrencies more attractive.

Overview: Union Budget 2024 

The Union Budget 2024 is hoped to favour Virtual Digital Assets (VDAs). On 1 February 2023, more clarity regarding the classification and taxation of VDAs is expected. The government introduced a flat tax rate of 30% on VDA income in the Union Budget 2022, on par with the tax on gains from speculative activities such as lotteries, betting, and gambling.

The tax applies only to the buying and selling of cryptocurrencies and does not apply to mining or staking. In this year’s budget, there is hope that the government will recognise VDAs as similar to trading in shares and securities.

Is Bitcoin legal in India?

As of now, the legal status of Bitcoin in India remains unclear. The use of Bitcoin and other cryptocurrencies as a medium of payment has not been authorised or regulated by any central authority in the country. There are no specific rules, regulations, or guidelines in place to address potential issues related to Bitcoin transactions.

Despite the lack of clear regulations, it is important to note that Bitcoin has not been declared illegal in India. The Supreme Court of India, in a ruling on February 25, 2019, acknowledged the need for the government to develop crypto regulation policies. However, the matter has been adjourned, and further hearings are scheduled for the second week of July 2019.

Engaging in Bitcoin transactions in India carries inherent risks due to the volatility of cryptocurrency investments. As the legal landscape evolves, potential investors and users should exercise caution and stay informed about any updates on crypto tax and regulations in the country. Until comprehensive regulations are established, the use of Bitcoin remains in a gray area in India.

Crypto Tax in India: What We Have to Know So Far

What are Virtual Digital Assets?

Virtual Digital Assets refer to digital assets that lack physical existence or tangibility. In simple terms, they include cryptocurrencies, DeFi (decentralised finance), and non-fungible tokens (NFTs). These assets do not encompass digital gold, central bank digital currency (CBDC), or other conventional digital assets. Consequently, taxation measures are specifically targeted towards cryptocurrencies and related virtual digital assets. As the digital asset landscape continues to evolve, it is essential to understand the distinction between virtual digital assets and traditional forms of digital assets to ensure appropriate regulatory and taxation considerations are applied to each category.

Crypto Tax in TDS in India

The Finance Bill of 2022 introduced TDS (Tax Deducted at Source) for Virtual Digital Assets (VDA) in India, referred to as 194S in the Income-Tax Act of 1961. This new provision mandates a 1% TDS on any consideration paid for the transfer of Virtual Digital Assets. The TDS applies to all sell transactions of crypto assets and came into effect on 1st July 2022.

It’s important to note that the 1% TDS is levied on the final sale amount, irrespective of whether the trade results in a profit or a loss. Only crypto sales are subject to this tax, and deposits in crypto or INR do not attract TDS. If a crypto asset is sold in exchange for another crypto asset, the 1% TDS will be levied on the equivalent rate of the asset being sold.

Additionally, other taxation rules for digital assets were also outlined. Income from the transfer of virtual digital assets, including cryptocurrencies and NFTs, will be taxed at 30% annually. No deductions, except for the cost of acquisition, will be allowed while reporting income from the transfer of digital assets, and losses from one digital currency cannot be set off against income from another. Moreover, gifting digital assets will attract tax in the hands of the receiver.

For users who haven’t filed their Income Tax Return in the last two years and have had TDS amounts of ₹ 50,000 or more in each of those years, the TDS for crypto-related transactions will be higher at 5%.

These provisions are significant for crypto investors in India, and it’s essential for them to be aware of these tax implications to ensure compliance with the law.

Union Budget 2024 Expectations for the Crypto Market

Guided Legislation of Crypto

The current crypto regulations appear to lack clarity and comprehensive guidelines for the future. Crypto enthusiasts eagerly anticipate a more detailed and well-defined approach from the government regarding this rapidly growing asset class. India, being a significant market for Web3 technologies with around 11% of the world’s Web3 talent, stands to benefit greatly from guided legislation that provides a more structured and organised framework for the crypto space. Such measures would facilitate responsible growth and development in the crypto industry while addressing potential risks and ensuring investor protection.

Clarity on the Regulations of Crypto

As an asset class, cryptocurrencies currently lack comprehensive regulations, with only a 30% tax on profits from crypto investments and a 1% TDS on buy/sell transactions imposed since 2022. The absence of clear guidelines for virtual digital assets leaves various transaction types unaddressed. With blockchain’s inherent freedom, the crypto space requires dedicated transparency to enable investors to harness the full potential of these assets. Clarity in regulations will promote responsible growth and provide a secure environment for crypto participants to explore the benefits of this emerging technology.

Lower Crypto Tax for Union Budget 2024

Since the announcement of the 1% TDS on crypto during the Union Budget 2022, experts have expressed concerns about its high rate, given the volatility of the crypto space. Discussions and proposals to reduce the TDS to 0.1% have surfaced. As the Union Budget 2024 approaches, crypto investors eagerly await Finance Minister Nirmala Sitharaman’s stance on the matter. Reports suggest that maintaining the 1% TDS could lead to a decline in capital investment and overall profits for crypto assets. This may discourage investors from using TDS-compliant Indian exchanges, opting for foreign exchanges without TDS deductions instead. The outcome of the upcoming budget will have significant implications for the crypto market in India. 

Tax Deducted at Source (TDS)

In addition, a 1% Tax Deducted at Source (TDS) is levied on sales contracts on crypto-assets; this tax is expected to be abolished in the near future. As a result, this would prove beneficial to traders who typically lose money with every trade. Furthermore, this serves as a deterrent to prospective entrants to the crypto market.

The government’s focus on building India’s digital infrastructure and its commitment to easing the tax burden on investors could be a major boost for the industry. It remains to be seen how the government responds to the demands of the crypto industry and what changes it will make in the tax structure for digital assets. Get basic legal advice from Vakilsearch!

FAQs on Union Budget 2024