Union Budget 2025: Will FM Finally Offer Tax Relief to India's Crypto Ecosystem? Among the demands and suggestions posed by the ecosystem players, the reduction of tax on virtual digital assets (VDA) and Tax Deducted at Source (TDS) remain a prime concern. The previous interim budget and union budget failed to provide any relief for domestic crypto investors.

Following a year of bitcoin price surge, spot bitcoin (BTC) exchange-traded fund (ETF) approvals, Ethereum ETF launch, an uptick in altcoins, and institutional investment growth, Indian cryptocurrency investors are on the lookout for positive announcements from Finance Minister Nirmala Sitharaman in the upcoming budget 2025.

Among the demands and suggestions posed by the ecosystem players, the reduction of tax on virtual digital assets (VDA) and Tax Deducted at Source (TDS) remain a prime concern. The previous interim budget and union budget failed to provide any relief for domestic crypto investors.

At present, the crypto market cap stands at USD 3.39T despite BTC, ether and altcoins being volatile. BTC makes up USD 1.92T of the crypto m-cap. It touched an all-time high of USD 108,268.45 and is ranked 7th, ahead of Saudi Aramco and Silver.

In 2022, the government introduced crypto taxation where a 30 per cent tax was to be levied on the profits of trading cryptocurrencies or other virtual digital assets (VDAs). Additionally, a one per cent Tax Deducted at Source (TDS) was levied on all transfers of VDAs.

For the upcoming Union Budget, let's take a look to understand the aspirations and expectations the ecosystem has from the upcoming Union Budget of India.

Income tax reforms expected

According to a report titled "TDS on Virtual Digital Assets: A report on the effect of the 1% TDS on tax revenue and user trends," the total volume of VDAs traded on Indian exchanges plummeted by approximately 97 per cent over the two years from February 1, 2022, to January 31, 2024. Avinash Shekhar, co-founder and CEO of Pi42 feels that Indian investors are missing out on the impressive gains on a global level. "Tax lowering would empower Indian investors to invest in this growing industry for higher returns, which will stimulate financial growth and innovation within India,' said Shekhar.

Experts hope for TDS to be cut from one per cent to 0.01 per cent to create a level playing field for crypto investors and traders. For Shekhar, it is equally important to provide for the set-off and carry-forward of losses in VDA transactions. "A reduction of TDS down to 0.01 per cent and the allowance for offsetting losses could significantly benefit investors and drive positive momentum in the industry,' said Edul Patel, co-founder & CEO, Mudrex. Patel observes that the inability to offset losses against gains has further dampened investor participation. Lower taxes will reportedly boost compliance and prevent investors from moving to exchanges abroad.

In December 2024, the Income Tax Appellate Tribunal (ITAT) in Jodhpur, in a landmark judgement, clarified the tax treatment of crypto in India stating that profits from cryptocurrency sales should be regarded as capital gains rather than income for sales made before 2022. This decision has significantly boosted optimism among investors. Raj Karkara, COO, ZebPay stated, "It is pivotal for India to align its crypto policies with the global regulatory framework to fully harness the industry's potential." He feels that recognition of crypto as a formal asset class, with clear classifications is another critical step. Karkara also calls for simplified tax structures to encourage wider participation while boosting liquidity and trading volumes in the domestic market. Vishal Sacheendran, Head of Markets, Binance anticipates measures that will clarify taxation on VDA, encourage responsible investing, and support the mainstreaming of digital currencies.

Sacheendran feels that the upcoming budget will be a great opportunity for India to introduce progressive measures that can have a positive impact on the industry and strengthen India's leadership in the global digital economy. "We strongly believe that a balanced regulatory framework is key to unlocking the full potential of the VDA space in India. Such a framework should encourage innovation, promote transparency, and ensure robust investor protection. Policymakers must work closely with industry leaders to create regulations that are both forward-thinking and adaptable to the rapidly evolving nature of digital assets," he said.

Talking about domestic innovations, Karkara calls for policies that incentivise innovation in the Web3 space. "(Subsidies or tax breaks for blockchain and Web3 startups) will position India as a global hub for decentralised finance, digital identity solutions, and asset tokenisation," he said. Concurs Sacheendran, "By fostering an ecosystem that supports blockchain-based technologies, the country can attract global talent and investment, while also creating local job opportunities in emerging sectors."