India unveiled its Union Budget for the 2025-26 financial year on February 1, 2025. While certain segments of the budget have been positively received by the public, leaders within the cryptocurrency industry are expressing dissatisfaction due to the government's decision to maintain the current taxation framework for digital assets.
Before the budget release, the crypto community had anticipated reforms that would ease the substantial tax burdens imposed in recent years.
As per the Finance Act of 2022, earnings from the transfer of virtual digital assets (VDAs) are taxed at a flat rate of 30%, with a 1% Tax Deducted at Source (TDS) on transactions exceeding specified limits. Furthermore, the government has barred the offsetting of losses from VDAs against gains from other sources, heightening the sector's challenges. Despite a growing movement advocating for investor-friendly policies, particularly after crypto-positive measures abroad, these stringent regulations remain in place.
Cryptocurrency enterprises and investors have openly criticized the lack of regulatory alleviation or clarity in the Union Budget. Sathvik Vishwanath, Co-Founder and CEO of Unocoin, remarked, "The Union Budget 2025 fails to provide relief for crypto investors as taxation policies stay unchanged, sustaining the 30% tax on gains and 1% TDS on transactions, which continues to stifle liquidity and discourage retail involvement and sector innovation."
The budget announcement also introduced new compliance requirements. Finance Minister Nirmala Sitharaman announced amendments to the Income Tax Act, mandating reporting entities to disclose VDA transaction details. Unreported crypto gains will be taxed as undisclosed income, attracting a 60% tax rate, with a 50% penalty for non-disclosure during assessments.
A planned consultation paper on reshaping India's cryptocurrency regulations, expected in March 2025, may experience further delays. India's Economic Affairs Secretary, Ajay Seth, recently stated, "With several jurisdictions altering their cryptocurrency regulatory perspectives, India is revisiting its approach. As digital assets disregard borders, India's stance cannot be one-sided."
In light of increasing global adoption, India appears more open to international collaboration on its crypto framework. However, challenges persist, as demonstrated by past actions against exchanges for non-compliance and fines levied against major global players.
Despite the rigorous taxation policies, Indian investors continue to engage with digital assets, often utilizing offshore exchanges to circumvent restrictions. This trend has caused significant trading volumes to shift overseas, with regulatory delays potentially affecting domestic innovation and value.
CoinDCX CEO Sumit Gupta warns that high taxes and unclear policies may drive away innovation and talent. He emphasizes that 2025 is pivotal for global cryptocurrency regulation, suggesting India's new Reserve Bank governor, known for understanding modern technology, might herald a shift in outlook.
The continuation of high taxation and a 1% TDS has led many Indian investors offshore, resulting in a notable reduction in domestic trading volumes. As global regulatory environments evolve, there is cautious optimism that India might adjust its policies to retain its position in the growing digital asset sphere.