India's crypto taxation framework: How does it fare globally?
India’s taxation framework and the intent behind it
In recent years, India has found itself amid a promising Web3 landscape, characterized by a remarkable surge in startups. This evolution, however, has been accompanied by a taxation framework, one that has created implications within the country's Web3 ecosystem.
The Finance Act, 2022 introduced Section 194S, which imposed TDS at the rate of 1% on sale of VDAs in India from 1st July 2022. Further, a high rate of income tax of 30% was also introduced on any income from transfer of VDA from 1st April. There are also further restrictions on available deductions and treatment of losses, with no setoffs allowed against other crypto gains.
The objective behind these measures was three-fold: tracking VDAs transactions by Indian residents, discouraging speculation and trading, and building guardrails around VDAs for safeguarding Indian interest and ensure financial stability.
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India’s engagement with VDAs remains unchanged
While India has made significant steps to standardise taxation, a high rate of TDS has caused a flight of volumes and users to platforms in foreign jurisdictions and the grey market. Following the announcement of a new tax regime, there was a shift of around Rs 32,000 crore of trade volume from domestic VDA exchanges to foreign ones from Feb-Oct 2022. Contribution of Indians to the volume on foreign VDA exchanges enabling peer-to-peer
