Budget 2025: The cryptocurrency industry in India is looking forward to a more favorable tax and regulatory environment as the Union Budget for 2025 approaches. India has been a leading nation in terms of cryptocurrency adoption. Despite this, challenges remain for the sector following the 2022 Union Budget. This budget introduced higher taxes, such as a 1% TDS on crypto transactions, and imposed restrictions on offsetting losses against gains.
Cryptocurrencies, categorised as Virtual Digital Assets according to Section 2(47A) of the Income Tax Act, have not yet been officially acknowledged as legal tender by the Indian central government. Consequently, the Income Tax Department (ITD) has not released any detailed tax guidelines regarding cryptocurrency.
Budget 2025 expectations
Lower TDS
An important suggestion from the crypto community is to lower the Tax Deducted at Source (TDS) rate on Virtual Digital Asset (VDA) transfers under section 194S from 1% to 0.01%. The current TDA rate serves as a barrier for investors, resulting in decreased market liquidity and participation. The cryptocurrency community argues that reducing this rate could encourage more transactions and foster a stronger trading ecosystem.
"We have been advocating for the reduction in the Tax Deducted at Source (TDS) on VDA transactions from the current 1% to 0.01%. This adjustment would significantly ease compliance challenges and promote market transparency while ensuring the tracking and tracing of transactions and boosting tax revenues," said Balaji Srihari, Vice President, CoinSwitch.
"The government is inviting suggestions for the Union Budget 2025-2026. Three requests you can make for a better Web3 ecosystem: 1. Reduce the crypto tax rate to 0.01%. 2. Request for amends to Sections 194S and 115BBH of the Income Tax Act to ensure that offshore platforms comply with local tax laws, regardless of their physical presence in India. 3. Request to allow taxpayers to offset losses from Virtual Digital Asset (VDA) transactions against gains from other VDA trades," said Neeraj Khandelwal, Co-Founder, CoinDCX.
"I believe that the Union Budget 2025 should target the reduction of tax on virtual digital assets below 30% and cut the TDS on all transactions from 1% to 0.01%. It is equally important to provide for the set-off and carry-forward of losses in VDA transactions. These reforms seem necessary to create a level playing field for crypto investors and traders. Lower taxes will boost compliance. Such reforms will reshape the industry and prevent investors from moving to exchanges abroad," said Avinash Shekhar, Co-founder, and CEO, Pi42.
Tax deduction
The community has suggested revisiting the tax deduction threshold outlined in Section 194S, advocating for an adjustment from Rs 50,000 to Rs 5,00,000. “It is pivotal for India to align its crypto policies with the global regulatory framework to harness the industry’s potential fully. We hope the Union Budget 2025 will introduce progressive measures such as revisiting the 30% tax on crypto income and the 1% TDS mechanism. Simplified tax structures can encourage wider participation while boosting liquidity and trading volumes. Recognition of crypto as a formal asset class, with clear classifications, is another critical step," said Raj Karkara, COO, of ZebPay.
Offsetting losses
It is recommended by stakeholders in the cryptocurrency industry to consider implementing the practice of offsetting and carrying forward losses, a common practice in other sectors. Currently, losses incurred from trading Virtual Digital Assets (VDAs) cannot be carried forward to offset future VDA gains or other income, hindering long-term investment and strategic trading decisions. The community argues that introducing this flexibility would align the crypto market with other financial markets, ultimately creating a more stable and appealing environment for investors.
Current taxation rules
The government has implemented a 30% tax rate on gains from crypto income starting from the Union Budget of 2022. Any income from selling or transferring crypto will be subject to this tax rate. Unlike other assets, deductions or losses cannot be applied to reduce the taxable crypto income. Therefore, if you earn a profit from crypto, you will be required to pay the full tax amount.
Additionally, a 1% TDS (Tax Deducted at Source) is imposed on each crypto transaction exceeding Rs 50,000 annually for regular investors, or Rs 10,000 for individual investors. This TDS is aimed at aiding the government in monitoring crypto trades efficiently.