The year 2022 has gone down the history with bitter shocks for crypto markets with the collapse of major stablecoins, illiquidity, bankruptcies of leading crypto exchanges, free fall in trading volumes, and extreme volatility among others. In India, crypto markets faced dual tax shocks such as a 30% plus surcharge and cess as well as a 1% TDS deduction on virtual digital currency, which did have its share of impact on both the market and investors.
While the current year 2023 is expected to be a cautious one for crypto investors, however, there are hopes that the Budget 2024 could give a much-needed boost to thrive ahead. Relaxation in the tax regime and regulatory framework is something the crypto market is keenly expectant from this budget.
Punit Agarwal, Founder of KoinX said, "If 2022 opened doors for tax, 2023 might open doors to a better and more optimized tax regime for crypto investors across India."
Agarwal cited that India has hinted at crypto regulations time and again over the past year. The G20 summit, hosted by India, specifically talked about regulation and the repercussions of a non-regulated market.
However, not just regulation, KoinX's founder also believes that the crypto market might also be seeing more favorable tax compliances for crypto investors in 2023. This would practically welcome more investors and traders into the industry. Along with this, he also expect the TDS on crypto transactions to be reduced.
Also, Dileep Seinberg, Founder, MuffinPay, Crypto Neobank said, "Indian crypto investors are keenly awaiting the budget announcement from the finance minister in the early next month. Taxation tweaks or any new announcements will be keenly tracked by the traders as it will shape the crypto adoption in India."
Talking about the 30% tax on your capital gains, Agarwal added, "it seems that profits on digital assets could also have reduced taxes because of how quickly India is moving towards establishing a more streamlined and promising Web3 ecosystem and how the current tax regime has lowered the the volume of Indian exchanges by nearly over 90%."
Further, according to Rahul Pagidipati, CEO, ZebPay, 2022 has been a crucial year for the Web3 and crypto industry. Despite being a relatively new and untested market, the crypto industry has witnessed rapid growth in India with an increasing number of people showcasing interest to invest in the asset class. According to a report released by FICCI and EY in 2022, Web 3.0 and blockchain can add a staggering $1.1 trillion to India's GDP by 2032.
Pagidipati added, "while it is great to see the government take a step towards regulating VDAs, in the upcoming budget 2023, we urge the government to create a progressive regulatory framework and offer clarity on taxation by reducing TDS and Capital Gains Taxes and leveling them with other asset classes such as stocks and bonds. This will address the ongoing concerns and uncertainty about the industry by creating transparency and helping industry players to protect users from any kind of black swan events like the FTX collapse. Clear governance and regulatory framework will enable more people to invest in VDAs and attain financial freedom. It will also encourage innovation to transform existing businesses through blockchain technology as well as build newer solutions for the industry to thrive further".
Shivam Thakral, CEO, BuyUcoin, India’s second longest-running crypto exchange also believes that the crypto sector needs immediate support from the regulators for creating a business-friendly environment that will enable the growth of blockchain companies in India.
Thakral added, "We are delighted to see that our honorable finance minister is actively involved in creating a global consensus for policy around crypto but Indian crypto entrepreneurs are looking forward to a fast-track implementation of the regulatory framework for crypto exchanges. Crypto investors should be allowed to offset and carry forward their losses to provide a level playing field to crypto assets and the TDS exemption limit should be raised to a reasonable level. Such positive steps will encourage responsible mass adoption of digital assets and propel India into the next phase of the Web3 economy."
Meanwhile, Tarusha Mittal, COO, and co-founder, UniFarm and Dapps believe that there is a need for a separate bill for the crypto industry.
Mittal explained that crypto is an essential part of Web3- but the Crypto Bill has been pending for years. Although the tax part has been addressed, Web3, crypto assets, NFTs, and the metaverse require a separate Bill for other regulatory matters. Recently, BWA has recommended FM to highlight the impact of the existing tax provisions such as TDS, tax on income from VDAs, and not allowing carrying forward of losses on the wider industry and share its inputs on suitable amendments which can help address the concerns of the government and at the same time allow growth of Web3 sector. The government should frame strong regulations for the sector in light of the FTX crisis- especially for centralized bodies dealing with crypto.
Notably, Mahin Gupta, Founder of Liminal, a digital wallet infrastructure platform pointed out that the Indian government took its first step towards regularising crypto by introducing a formal tax regime for digital assets. According to Gupta, the formal tax structure gives institutional investors much-needed clarity and direction to look at digital assets as an alternate asset class.
At present, India has an estimated 15 million cryptocurrency users, while it is also home to 11% of the global Web3.0 talents, employing nearly 75,000 blockchain professionals with 450+ Web3.0 and blockchain startups operating out of India.
Gupta added that these figures alone signify the budding web3 ecosystem in India. The Indian IT ecosystem is perfectly positioned to build the web3 and blockchain economy of the future and is poised to play a crucial role in fulfilling the Government of India's vision and mission of 'Make in India' for the world.
But Gupta also mentioned that 30% of the current crypto investors fall under the age of 30. Since this is the age when a person starts their journey towards financial planning and stability, we believe that the Government should rationalise the 30% tax to foster a thriving IT and web3 ecosystem that will drive innovation and growth in the country. Also, with Institutional investors in the picture, storing digital assets in a secure and compliant way becomes an absolute necessity. India needs professional digital wallet infrastructure companies which are regulated, compliant, and licensed to boost the confidence of retail and institutional stakeholders.
Considering this, Gupta said, "we hope that the upcoming union budget will create a regulatory framework for digital wallet companies and a single window clearance to register and operate in India under the supervision of relevant regulatory authorities. We request an infrastructure status for digital wallet infrastructure service providers so that they can actively contribute towards making India a $5 trillion digital economy."
Talking about the decline in trading volumes, Pratik Gauri, Co-founder & CEO, 5ire said, "Of course, the decline of trading volumes by as much as 85-90% is concerning, and the fear of not attracting investments in the Web3 innovative startups will impact the overall picture. But, as I have said earlier, the taxation of income and assets is entirely the purview of the government, and they have the exclusive right to impose and collect such dues."
Gauri feels that the utmost importance here is to remember that any monumental shift caused by Web3 will be the world shifting from a "value capture" economy to a "value creation" economy. She added, "This will require a new set of rules, which democratizes access to resources for creators and makes value creation as rewarding as capturing value. This means a direct relationship between the human capital and the consumers of its creation."
Thereby, Gauri stated that it is vital to ensure that any taxation regime does not hamper the development of India's talent in Web3 and the supercharged innovative environment India has been experiencing recently.
Other than this, Seinberg believes announcement over CBDCs, after its pilot run, will also be among the key developments in the world of finance and payments.
On the overall, blockchain industry, Ankit Wadhwa, Co-founder & CEO, Rario said, "while 2022 has been a transformative year for the digital collectibles industry, with the increasing popularity of digital trading cards and virtual digital assets with proof of ownership using blockchain technology, the industry size rose to approximately 426 billion USD in 2022 worldwide. We also believe that blockchain technology will help India to rise considerably in rank amongst the nations to be the undisputed world leader in this space. We hope that the G20 presidency is also used to push innovation in blockchain technology with India at the forefront."
Seinberg said, "2023 will be a year of caution for the investors, who shall focus on the innovations and developments in the Web 3.0 and blockchain space."
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
