The Budget for 2023 is scheduled to be discussed on 1 February 2023. After imposing a 30% fixed tax rate on all income generated through crypto trading in Budget 2022, crypto experts have certain expectations this time from Finance Minister Nirmala Sitharaman’s Union Budget 2023.
Wazir X Vice President Rajagopal Menon lists out three expectations in the Crypto ecosystem from Union Budget 2023.
1) Classification of Virtual Digital Asset (VDA) as a regulated asset class
VDAs should be classified as a suitable asset class, similar to securities, and the tax slabs and set-off benefits that apply to securities as an asset class should also apply to Crypto assets.
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Securities are classified as an asset class based on the risks associated with them, with products ranging from low-risk government bonds to high-risk derivatives. As a result, VDAs should be appropriately classified and regulated so that investors can understand the associated risks and invest accordingly.
2) 1% TDS on sale transaction
This tax must be abolished or repealed urgently because it causes investors to lose capital with each trade and discourages prospective investors from participating in this market. The buyer deducts this amount from the amount owed to the seller. This essentially means that every trade would cost investors 1% of their capital. While any TDS amount in excess of taxes due would eventually be refunded, it has had a crushing effect on day traders and short-term investors’ capital. It would imply that, from a broader macroeconomic standpoint, the amount of capital invested in Crypto assets would constantly decrease with each trade, reducing the category’s overall profits. This would only serve to discourage investors from taking part in Indian exchanges that are TDS compliant in favour of foreign exchanges that do not deduct TDS.
3) No set-off or carry forward of losses in VDAs
As stated in point 1, there is an urgent need to classify VDA as a regulated asset class, similar to securities, and to bring taxation on parity with equity shares/derivatives by allowing set off/carry forward of losses.
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The 30% threshold was set in response to comparisons of digital assets to extremely speculative avenues such as gambling, betting, and so on. VDAs are more akin to securities trading, requiring clear ownership and title of the assets as well as sufficient liquidity in the system to transact. The current tax slabs will only discourage and deter traders with a risk appetite from dealing in VDAs.
