Good News: India Moves Toward Smarter Crypto Laws And Tax Relief

India Plans Balance Crypto Law: CBDT Reviews 1% TDS, Loss Set-Off Rule

In a significant move to the Indian cryptocurrency sector, the Central Board of Direct Taxes (CBDT) has formally contacted cryptocurrency exchanges in India to provide their feedback on the proposed regulations concerning Virtual Digital Assets (VDAs). 

The action is one of the initial attempts of the government to cooperate with the crypto industry. Therefore, moving towards more balanced and inclusive regulation.

What the CBDT Wants to Discuss

The CBDT has asked exchanges to provide suggestions and feedback on several important areas:

• Creating a suitable law dedicated to the Virtual Digital Assets

• Examining the current 1% TDS on crypto transactions

• The permission of traders to offset their losses against gains (which is not currently permissible)

• Solving the problem of users and volumes transferring to offshore exchanges

This outreach is considered to be addressing the issues expressed in a report published in 2023 by Esya Centre. This is estimated that between 3 and 5 million Indian users shifted their trading to overseas exchanges when the TDS rule became effective.

Source: Sapna Singh X

Why Crypto Tax Relief in India Matters

Since the Union Budget of 2022, the Indian government has been taxing crypto gains at 30% and imposing a 1% TDS on every trade. While these steps gave some clarity, they also placed a heavy burden on traders and investors. Because people couldn't claim losses or recover TDS easily, many Indian users started using foreign exchanges, leading to capital outflow and loss of business for domestic platforms.

This recent development by the CBDT is the first real indicator that the government is willing to listen and possibly make the tax policy more practical.

India’s Crypto Landscape So Far

India currently does not have any dedicated regulation or legal recognition of cryptocurrency as money. According to a 2022 report by UNCTAD, over 10 crore Indians (around 7.3% of the population) own digital assets, making India one of the largest user bases globally. Yet, because of the lack of proper law, the environment remains risky and uncertain for both investors and companies.

The Reserve Bank of India (RBI) has made several announcements that cryptocurrencies in India are not a legal tender, and this fact once again speaks to the regulatory gap in the Indian system.

A Shift Towards Global Alignment

Such regulations as taxation, consumer protection, and exchange registration have already been worked out in detail in countries such as the United States and members of the European Union. 

The most recent move to consult in India suggests that the country is now possibly going in the same direction as well, but not by banning crypto like China, but by regulating it through an established set of rules.

Industry insiders are of the opinion that by lowering the 1% TDS and enabling loss set-off, the local industry will be able to participate. Thus, avoiding capital flight, Indian businesses will be able to innovate and remain competitive in the international market.

Conclusion

The activities of the CBDT to engage the exchanges are widely hailed as the first evidence of a more mature regulatory approach in India. The hope of the market players is that it may result in fairer tax regulations and a more secure and stable environment to trade in cryptocurrencies in the nation.