Union Budget 2023 Income Tax: 30% Crypto Tax Imposition Had Adverse Impact

Union Budget 2023: A unique gem in the Indian fintech landscape is cryptocurrency. India has rarely been successful in creating and growing local companies and cutting-edge technological solutions in lockstep with Western competitors. In the last two decades, India has had considerable success building a robust IT industry and, later, an internet services business. Yet, whether it be smartphones or semiconductors, humans have been slow to adopt and shape novel technologies.

On crypto, however, our entrepreneurs have chosen an untried path: to create goods and services that compete with those of global peers. Indian platforms have been able to expand and meet the needs of millions of users even in the early days of cryptocurrency. In both the crypto investment and infrastructure sectors, India has created unicorns. This has developed concurrently with India’s digital development. As a result, India accounted for 172 billion USD in crypto transactions between July 2021 and June 2022, placing India fourth globally in terms of purchasing power parity adoption.

The Union Budget from the previous year recognized this rising use by imposing a tax system for VDAs was established. The budget provided much-needed clarity on crypto taxation. Beyond this solace, however, the tax system facing crypto investors was one that was incomparable to that of other asset classes.

The tax imposition and high TDS

The fundamental exemption, the distinction between long-term and short-term capital gains based on the length of ownership, and the ability for investors to carry forward or offset losses were all absent from the flat 30% tax on earnings. Significantly, the TDS of 1% on each sell transaction had a compounding effect on capital-rich high-frequency traders, who are the source of market liquidity.

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Nearly a year later, it is evident that these restrictive measures achieved the opposite of what was intended. Rather than increasing transparency and compliance in crypto transactions in India. They unintentionally encouraged consumers to switch to offshore exchanges and grey markets.

The harsh consequences

According to a recent study by the Esya Centre and Taxsutra, domestic cryptocurrency startups will shift their whole transaction volume from February to October 2022 to overseas exchanges by almost INR 32,000 crore.

This has substantial consequences, including lost tax revenue for the government, diminished control over cryptocurrency transactions, and significantly increased consumer exposure to offshore risk. We hope that the government will change its course and enact taxes that encourage users to adhere to the law and remain inside our territorial jurisdiction. Higher taxes result.

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Shourya mainly reports on Cryptocurrency Prices, NFTs and Metaverse. Graduated and post graduated in Journalism, she always wanted to be in business field. Connect with her at [email protected] or tweet at Shourya_Jha7