Updates Needed for India’s Tax Code on Virtual Digital Assets (VDA)
Writing the tax code for any industry is challenging, especially when the industry is still in its early stages of development. To keep up with the evolving ecosystem, regular updates are necessary for India’s tax code on Virtual Digital Assets (VDA).
Tax Updates for VDAs
In 2022, the Indian government introduced taxation on VDAs, bringing much-needed clarity to investors and the industry. However, two years later, it is time to implement some tax updates to reflect the current market conditions.
Pitfalls of High TDS
The high rate of 1% TDS (Tax Deducted at Source) on every sell transaction has negatively impacted investors and high-frequency traders. Many traders and investors have moved their transactions to offshore exchanges due to the substantial working capital taken away by the TDS. To address this issue, India should rationalize the TDS rate to a lower rate, such as 0.01%, encouraging traders to opt for tax-compliant VDA service providers within the country.
Treat VDAs on Par with Capital Assets
The existing tax norms on VDA income need refinement. Currently, there is no differentiation between short-term and long-term gains, and losses cannot be set off or carried forward. Additionally, there is a lack of a basic exemption limit for VDA income. These issues should be addressed by providing provisions similar to other capital assets and introducing a basic exemption limit.
Empower Service Providers
The expansion of the Prevention of Money Laundering Act (PMLA) to VDAs was a positive step by the Indian government. However, VDA service providers need access to the Central KYC registry to effectively carry out their compliance requirements. Closing this gap will enable efficient compliance in the VDA sector.
A Robust Regulatory Framework for VDAs
India should prioritize announcing a robust regulatory framework for VDAs in the upcoming Budget. With increasing regulatory clarity on VDAs worldwide, India has the opportunity to play a decisive role in this space. The country has the talent, digital infrastructure, and entrepreneurial spirit to capture these opportunities.
Hot Take: India Should Seize the Opportunity in the VDA Space
With the rapid growth of VDAs globally, India has the potential to be a leader in this industry. By implementing necessary tax updates and providing a favorable regulatory environment, India can attract more investors and foster innovation in the VDA sector. It is time for India to take action and capitalize on these opportunities.
By
By
By
By
By