India Keeps Stiff Taxes on Crypto as Interim-Budget Is Revealed in Election Year

India has not introduced any changes to its controversial tax deducted at source (TDS) policy that is affecting the crypto industry.

The nation’s finance minister Nirmala Sitharaman revealed the budget in parliament on Thursday as usual. Expectations were low for a change in the stiff taxes on crypto transactions, which include a 30% tax on profits and a 1% TDS on all transactions. However, there was a glimmer of hope because of efforts from the domestic crypto industry and a study from a think tank pushed hard for a reduction in the TDS.

In general, this budget had lower expectations in terms of the financial sector as India is headed for general elections in the next two months. Sitharaman announced no changes in taxation – both direct and indirect.

In the election year, the finance ministry doesn’t usually present a full budget but an interim one to fund its expenses for a short time. A full budget is usually expected in July after the results. Prime Minister Narendra Modi and his Bharatiya Janta Party are expected to return to power, according to polls.

India’s crypto industry has urged the government to reduce the 1% TDS to 0.01% ever since it was first announced two years ago. Indian crypto exchanges have been in survival mode, trying to extend their runways in response to the 1% TDS.

Dilip Chenoy, the chairman of the Bharat Web3 Association, the policy body advocating for India’s Web3 sector, said given this is an interim budget we didn’t expect any big movement but “we are eagerly anticipating changes to be announced post-elections.”

“High TDS and income tax rates continue to be hurdles which have caused both creators and consumers to move out of India,” Chenoy said. “This migration has significantly affected the prospects of Web3 in India. We have and will continue highlight such concerns to key stakeholders.”

The taxes by India’s government have prompted as many as five million crypto traders to move their transactions offshore, costing the government a potential $420 million in revenue since it was introduced in July 2022, according to a study by the Esya Centre.

“Digital public infrastructure and the PM’s aspiration for [innovation] will benefit from integrating provisions for long-term financing of domestic crypto projects given how India is at a pivotal phase in the crypto revolution,” said Rajagopal Menon, vice president of cryptocurrency exchange WazirX. “We expect these developments to factor in the government’s agenda along with our existing requests for a reduction in TDS rates to 0.01% and offset of losses for traders.”

UPDATE (Feb. 1, 2024 9:00 UTC): Adds quote of Dilip Chenoy.