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India's Budget 2025 brought little relief to cryptocurrency investors, maintaining the existing 30% tax on gains and 1% TDS (Tax Deducted at Source) on transactions. This decision comes despite industry calls for tax breaks and follows the implementation of these taxes in July 2022. The lack of change reflects the government's continued cautious approach to regulating the burgeoning cryptocurrency market, prioritizing revenue generation over immediate market stimulation or technological advancement in the sector. The continuation of these taxes creates ongoing liquidity challenges for investors and may continue to discourage retail participation, hindering the growth and innovation within the Indian cryptocurrency ecosystem. This conservative stance contrasts with some other countries exploring more progressive tax frameworks or regulatory sandboxes for cryptocurrency development.
A significant change introduced by Budget 2025 involves enhanced reporting requirements. Reporting entities, including banks and cryptocurrency exchanges, are now mandated to regularly submit information to the Income Tax Department on all cryptocurrency transactions. This covers both past and future transactions, indicating a move towards increased transparency and surveillance within the crypto space. This enhanced reporting mechanism is designed to improve tax compliance and potentially curb tax evasion within the sector, providing the government with a more comprehensive overview of crypto activity within the country. The implementation of this measure is expected to bring significant changes to how crypto exchanges operate and how investors manage their crypto portfolios. The change expands the scope of the tax department's ability to investigate potentially untaxed income linked to crypto investments.
The definition of 'virtual digital assets' (VDAs) has also undergone a significant expansion. The updated definition now encompasses any asset employing crypto-like technology, effectively broadening the scope of assets subject to the 30% tax rate. This broader definition aims to prevent tax avoidance by encompassing a wider array of digital assets that may attempt to circumvent existing regulations. It signals a proactive approach from the Indian government to adapt its regulatory framework to the evolving landscape of digital assets. This move also aims to bring a level of uniformity to the tax treatment of various assets using blockchain and related technologies, ensuring a consistent application of the tax code and preventing potential loopholes. This expansion clarifies the government’s intention to rigorously tax crypto-related activities, irrespective of technical classification.
Further bolstering the government's crackdown on undisclosed income, Budget 2025 includes virtual digital assets in the definition of undisclosed income. This inclusion means that unreported crypto gains detected during tax audits or investigations are subject to a harsh 60% tax along with a steep 50% penalty on the tax amount. This significant penalty aims to deter tax evasion and encourage greater compliance among cryptocurrency investors. The amendment reflects the government's seriousness in tackling tax evasion, using crypto assets as an example of a previously difficult-to-track income stream. The increased penalties are expected to prompt many investors to ensure complete and accurate reporting of their crypto holdings and transactions to avoid hefty financial consequences. The government clearly intends to remove the potential advantage that untaxed crypto holdings offered to tax evaders.
The proposed amendments, set to come into effect on April 1, 2026, include the introduction of Section 285BAA in the Income-tax Act, 1961. This section mandates reporting entities to submit detailed transaction information, ensuring better tracking of cryptocurrency activities. The amendments also clarify the tax treatment of VDAs, aligning the definition to include assets utilizing cryptographic security and distributed ledger technology. These measures demonstrate the government's commitment to developing a comprehensive and well-defined regulatory framework for cryptocurrency and digital assets. It’s a strong signal that the government is adopting a long-term view on the integration of cryptocurrencies into the Indian financial system, even if its current approach leans towards cautious regulation.
The lack of clarity on the taxation of cryptocurrency futures and options (F&O), which are currently taxed as business income, remains a point of contention. Experts and industry stakeholders continue to advocate for clearer guidelines to align this with the treatment of other VDAs. This ambiguity contributes to the ongoing uncertainty within the market and highlights the need for further refinement of the tax code regarding these more complex derivatives. The ongoing debate highlights the evolving nature of the regulatory landscape and underscores the need for flexible and adaptable regulations that keep pace with the rapid developments in the cryptocurrency space. The government is likely to face continued pressure to address this ambiguity and provide much-needed regulatory clarity for crypto F&O in the coming years.
Source: Tax on cryptos: How Budget 2025 has changed Virtual Digital Asset taxation; check details