Crypto Tax Update: No Changes for Virtual Digital Assets in Budget 2024

In the first budget of the Modi 3.0 administration, Finance Minister Nirmala Sitharaman unveiled a series of reforms aimed at fostering growth and innovation while leaving the cryptocurrency tax policies untouched. This move marks a significant shift in the taxation landscape, particularly benefiting startups and investors.

Income Tax Act Review for Clarity and Certainty

The Finance Minister announced a comprehensive review of the Income Tax Act, of 1961, with the goal of making it more concise and understandable. The review, slated for completion within six months, aims to reduce disputes and litigation, thus providing greater tax certainty for all taxpayers.

However, the cryptocurrency sector saw no changes in its taxation framework, despite persistent requests from the Bharat Web3 Association (BWA) to reduce the Tax Deducted at Source (TDS) on Virtual Digital Assets (VDAs) from 1% to 0.01%.

Continued Crypto Tax Controversy

The crypto community had hoped for some relief in the budget. Dilip Chenoy, Chairperson of the Bharat Web3 Association, expressed mixed feelings, stating, “We were hoping for some relaxation to the taxation framework on VDAs in this budget, but the absence of any announcement is not particularly disheartening, given the government’s overall negative stance towards the sector.”

Major Reforms to Promote Investment and Employment

One of the standout announcements was the abolition of the angel tax for all classes of investors. This move is expected to boost the Indian startup ecosystem, encourage entrepreneurial spirit, and support innovation. Sitharaman emphasized, “To bolster the Indian startup ecosystem, boost the entrepreneurial spirit, and support innovation, I propose to abolish the so-called angel tax for all classes of investors.”

Simplification of Capital Gains Taxation

The budget also introduces a simplified regime for capital gains taxation. Short-term gains on certain financial assets will now be taxed at a rate of 20%, while long-term gains on all financial and non-financial assets will be subject to a 12.5% tax rate.

Additionally, the exemption limit for capital gains on certain financial assets will be increased to ₹1.25 lakh per year. Listed financial assets held for over a year will be classified as long-term, while unlisted financial assets and non-financial assets must be held for at least two years.

Other Key Tax Changes

Additional reforms include the withdrawal of the 20% TDS rate on the repurchase of mutual fund units and a reduction of the TDS rate on e-commerce transactions from 1% to 0.1%. Moreover, the proposal includes allowing TCS credits to TDS deducted from salaries and decriminalizing delays in TDS payments up to the filing due date.

Also Read: India’s Crypto Tax Explained by CoinDCX CEO: What Investors Need to Know