India’s current taxation model for Virtual Digital Assets (VDAs) has inadvertently driven traders away from Indian exchanges, stifling market growth and innovation. High-frequency traders, essential for market liquidity, are particularly impacted by the 30% capital gains tax, combined with disallowance of offsetting and carrying forward losses.
This double whammy has led to a decline in engagement on Indian platforms, promoting non-compliant and dangerous ways of investing. Similar challenges arise from past economic missteps, such as high customs duties on gold imports fueling smuggling.
To ensure domestic exchanges remain competitive while safeguarding investors, recalibrating the taxation framework and introducing more investor-friendly regulations is key. A reduction in the Tax Deduction at Source (TDS) rate from 1% to 0.01% could offer immediate relief, attracting traders and increasing tax compliance.
India must also implement clear, streamlined regulatory frameworks that prioritize consumer protection, facilitate compliance, and promote fair competition. International examples from jurisdictions like Switzerland and Singapore demonstrate that balanced tax policies, coupled with effective compliance mechanisms, can create an environment conducive to innovation while keeping users within regulated ecosystems.
As policymakers prepare for Budget 2025, it is crucial to take proactive steps in nurturing the VDA industry, which has immense potential as a driver of economic growth, technological innovation, and financial inclusion.
Source: https://economictimes.indiatimes.com/wealth/invest/articleshow/117771435.cms?from=mdr