What Future of Crypto Taxes and Regulations May Look Like in India – Insights From Expert

Jai Pratap
Last updated: | 3 min read
Crypto taxes India
source: Catax / LinkedIn

The Indian crypto market is buzzing with talks of taxation and regulations. With the central government set to announce the interim budget on 1st February, crypto exchanges and traders are hoping for relief from the 1% TDS (Tax Deducted at Source) and 30% tax on crypto. However, the chances of their wish being granted seem less likely.

In a conversation with Gaurav Mehta, the founder of Catax, India’s first crypto tax software, we explore where India is heading with crypto tax laws and regulations.

India’s First Crypto Tax Software

Gaurav conceived the idea of running a crypto tax software back in 2014 and had already started pitching the idea to investors, 8 years before any formal crypto tax regulations in India. Though the solution of crypto taxes didn’t start to materialize until 2022 for Catax.

Gaurav, who works as a forensic expert with different law enforcement agencies on cases related to blockchain, was a guest lecturer at National Academy of Direct Taxes where he trained IRS officers from 2021-2023. Catax, which primarily started to serve crypto taxation solutions to governments and businesses, aims to help a million retail customers with free crypto tax solutions in 2024-2025, Gaurav told Cryptonews.

Government is Building Competency in Catching Crypto Tax Evaders

Talking about current crypto taxations in India, Gaurav said:

“Up until 2023, the anonymity of the blockchain primarily benefited individuals. However, starting in 2024, the dynamics shift in favor of organizations, compliance, and all stakeholders. This shift occurs because the recent advancements have enabled the capacity to interpret, and track the blockchain effectively. As a result, taxation is poised to become a significant concern for everyone in the upcoming years.”

“The government is now building competency in this domain that will ultimately translate into identifying the people who are evading taxes,” he added.

The Battle of 1% TDS on Crypto Transactions

As per Gaurav, 1% TDS on crypto taxes is justifiable as it helps remove the fraud from markets such as pump and dump schemes. He said: “The 1% TDS is primarily to remove the speculation from the market which has been there for such a long time manipulating the public, 1% TDS ensures that the people are only encouraged to engage in necessary and effective trade.”

However, before 1% TDS on crypto transactions was implemented in India in July 2022, nearly three to five million customers flew to offshore exchanges in five months. This resulted in approximately a loss of $420 million in taxes for the Indian government. Now, all the offshore crypto exchanges have been blocked in India.

Earlier, in an interview with Cryptonews, co-founder of India’s leading crypto exchange CoinDCX, Neeraj Khandelwal, said “1% TDS on crypto transactions is a “death blow” to the industry.

Future of Crypto Regulations in India

Gaurav noted that given India has a protectionist economy, meaning the government closely oversees the funds flowing outside of the country, unlike the developed countries like the USA or UK, it is unlikely that crypto regulations will be similar to those countries.

However, India currently has a community of more than 15 million investors who have a vested interest in crypto and are trying to convince the government to bring regulations. Gaurav further added that given India’s economic position, there could be regulations that separate crypto trading from crypto ownership. He added:

“We may have something where people would be able to create a Demat-like account on the crypto exchanges and would be able to buy and sell their crypto. But to transfer the crypto from India to somewhere else that clearance would be done by National Securities Depositories Ltd (NSDL) and Central Securities Depositories Ltd (CDSL) like entities.”

RBI Governor Remains Critical of Crypto

Speaking at the World Economic Forum in Davos today, the governor of the Reserve Bank of India, Shaktikanta Das, once again reiterated the negative stance on crypto, saying, “cryptocurrency is highly speculative and country like India should be very careful.”

He added:

“Cryptocurrencies have huge risk, particularly for emerging market economies because it can impact your financial stability, currency stability, and monetary system.There is no underlying value. It is not a currency, but it has the potential to become a currency in which event it can occupy the part of the payments system. It can impact your banking system and therefore it has very much risk involved in it.”

Crypto regulations was among one of the main topics during the G20 summit last year in India. The Indian government proposed universal regulations for all the G-20 members and accepted a synthesis paper proposing a IMF and FSB. The crypto community in India continues to wait for any formal regulations.