The Indian government's Union Budget 2025 has left cryptocurrency investors and traders underwhelmed, as hopes for a relaxation in taxation policies have been dashed. Despite growing expectations, the government has opted to maintain the existing tax structure on virtual digital assets, including cryptocurrencies, imposing a 30% tax on gains and a 1% TDS on transactions.
This decision will likely disappoint the crypto community, which had been advocating for reduced taxes and more favorable regulations to stimulate growth and innovation.
Cryptocurrency taxation in India follows a framework that was introduced in 2022. Under this system, 30% of all income derived from digital assets is taxed. Besides, every transaction in cryptocurrencies is charged 1% TDS on the transaction amount above a certain threshold. This implies that for each transaction involving the purchase or sale of a crypto asset, 1% of the value of the transaction is deducted and remitted to the tax authorities.
The third most crucial crypto tax rule that is applied involves loss offsets, which prohibit offset losses. This contrasts with stock market investment, as it forbids offsetting losses from a specific transaction with the gains obtained in another.
The Budget 2025 maintains its previous tax laws regarding cryptocurrencies. After the repeated demands of the crypto industry for tax benefits and exemptions, the government has not introduced them in its system. The 30% flat tax on crypto gains and 1% TDS on transactions continues to be there.
Many industry experts had hoped that the TDS rate in its introduction would be lowered because, with TDS, crypto transactions could now be monitored and put in a regulatory framework. Nothing has been changed in this regard. One major disappointment for the traders and investors is the absence of new provisions to allow loss offsetting.
The continuation of the high tax rates and stricter rules is predicted to have quite a few ripple effects on the cryptocurrency market in India:
Lower Trade Volumes The 1% TDS from each transaction leads to discouragement from high-frequency trading. Trading avoids unnecessary withholding, which cuts the activity around Indian exchanges.
Offshore Platforms: Because of high tax rates, most Indian crypto users have now shifted to international exchanges that do not deduct TDS. Such a shift decreases the transaction volumes in India and can result in revenue loss for local exchanges.
Innovation Hindrance: Blockchain and cryptocurrency startups operating in India have seen a hindrance due to strict tax rules. Many consider moving abroad to more crypto-friendly countries.
Long-term holding preference: An investor who believes that the future of digital assets may be most willing to hold their crypto for a longer time rather than frequently trading them to reduce tax liabilities.
The Indian cryptocurrency community had high expectations from the budget. Many within the industry were urging the government to lower the TDS rate from 1% to 0.01% to get more transparent trade. Loss adjustment was also urged to be made available, putting crypto taxation closer to other classes of assets.
On the other hand, the budget has failed to address these issues. Industry players believe that this may deter the adoption rate of cryptocurrency in this country. Blockchain-based companies might migrate to friendlier jurisdictions where regulations are not stiff.
On the other hand, the government's approach is cautious towards digital assets. The authorities have time and again emphasized the need for a well-regulated environment to prevent financial risks, money laundering, and fraud. The unchanged taxation rules indicate that India is not yet ready to provide any special incentives for crypto investments.
Though the tax structure at present is not going to be changed, many factors will decide the future of cryptocurrency taxation in India. These factors include the global regulatory environment, the adoption of CBDCs, and new guidelines from international financial bodies that will affect the decisions of the government.
Industry leaders continue to stay in close conversation with policymakers, seeking a balance that will push innovation but is compliant with the financial regulations put in place. Many feel the government will soften its stance if adequate progress globally toward crypto regulation exists.
Budget 2025 retained similar taxation policies on cryptocurrency. So, the profits of an individual will continue to be 30%, and TDS will be 1% on the transaction. Although the government has been unrelenting over its regulatory stance, the crypto industry pleads for more favorable policies. The next few years will be a time of significant observations regarding how these taxation rules affect trading volume, investor behavior, or innovation.