Synopsis
The massive Web3 talent pool residing in the country has led to innovation in diverse areas within the space. This includes decentralized finance (DeFi), metaverse, and non-fungible tokens (NFTs), among others, aiming to solve the most pressing issues facing our country. However, despite this impressive foundation, the sector’s growth is hindered by an outdated taxation framework. The upcoming Union Budget offers a crucial opportunity to address these challenges and unlock the full potential of Web3 for India’s economy.
The Web3 ecosystem presents a transformative opportunity for India, with the potential to redefine the digital economy, contributing an estimated USD 1.1 trillion to the GDP in the coming years, creating millions of new jobs, and strengthening the country’s global standing. India currently boasts the third-largest Web3 talent pool globally, with 12% of the world’s Web3 developers in the country, contributing to the development of the global Web3 ecosystem.
The massive Web3 talent pool residing in the country has led to innovation in diverse areas within the space. This includes decentralized finance (DeFi), metaverse, and non-fungible tokens (NFTs), among others, aiming to solve the most pressing issues facing our country. However, despite this impressive foundation, the sector’s growth is hindered by an outdated taxation framework. The upcoming Union Budget offers a crucial opportunity to address these challenges and unlock the full potential of Web3 for India’s economy.
The 1% Tax Deducted at Source (TDS) on every transaction and a flat 30% capital gains tax have created significant challenges for the ecosystem. Since the introduction of these policies in 2022, the domestic market has seen a massive 92% decline in trading volumes, with 3–5 million users migrating to offshore platforms. This capital flight not only weakens India’s Web3 landscape but also reduces government oversight and tax revenues.
Crypto Tracker
TOP COIN SETSCrypto Blue Chip – 50.59% BuySmart Contract Tracker-0.79% BuyDeFi Tracker-6.43% BuyWeb3 Tracker-7.51% BuyAI Tracker-7.52% BuyTOP COINS (₹) Bitcoin9,048,030 (1.02%)BuyEthereum285,948 (0.55%)BuyXRP270 (0.33%)BuySolana21,746 (0.15%)BuyTether86 (-0.09%)BuyHigh TDS rates have proven especially detrimental to liquidity, forcing high-frequency traders, who are key contributors to market stability, out of the ecosystem. Further, the administrative burden of processing tax refunds, which often surpass the actual tax liability, unnecessarily strains the Income Tax Department. Over the next three years, loss-making traders alone are expected to claim Rs 666 crore in refunds. These factors, combined with the inability to offset or carry forward VDA losses, have discouraged startups and investors, pushing 60% of Indian-founded Web3 companies to register abroad. This “crypto brain drain” has stifled innovation and compromised India’s position as a global Web3 leader.
We believe the following measures will help address these issues in the upcoming budget. Lowering the TDS rate to 0.01% could enhance market liquidity and compliance, while allowing offset and carry-forward of VDA losses would align India with global practices. We also propose taxing VDAs based on their use case, such as treating utility tokens as “income from other sources” rather than applying a blanket 30% tax. Additionally, aligning capital gains taxation with income tax slabs and raising the TDS threshold to Rs 5,00,000 could encourage broader participation. Streamlining refund processes, including provisions for NIL or lower deduction certificates, would alleviate administrative challenges and improve taxpayer experience.
Stock Trading
Maximise Returns by Investing in the Right Companies
View Program
Stock Trading
Market 104: Options Trading: Kickstart Your F&O Adventure
View Program
Stock Trading
Technical Analysis for Everyone – Technical Analysis Course
View Program
Stock Trading
Stock Markets Made Easy
View Program
Stock Trading
Renko Chart Patterns Made Easy
View Program
Stock Trading
Market 101: An Insight into Trendlines and Momentum
View Program
Stock Trading
Markets 102: Mastering Sentiment Indicators for Swing and Positional Trading
View Program
Stock Trading
Dow Theory Made Easy
View Program
Stock Trading
Market 103: Mastering Trends with RMI and Techno-Funda Insights
View Program
Stock Trading
ROC Made Easy: Master Course for ROC Stock Indicator
View Program
Stock Trading
Heikin Ashi Trading Tactics: Master the Art of Trading
View Program
Stock Trading
RSI Made Easy: RSI Trading Course
View Program
Stock Trading
Introduction to Technical Analysis & Candlestick Theory
View Program
Global examples underscore the value of supportive tax policies. Singapore exempts individuals from capital gains tax on VDAs, while Germany offers tax-free profits for long-term holding. In contrast, India’s rigid framework has driven away investors and talent, with domestic Web3 funding plummeting by 81% in 2023. Despite these setbacks, India remains a global leader in crypto adoption, with developers rising from 3% of the global pool in 2018 to 12% in 2023. Rationalizing taxation could further strengthen this position, attracting investments, fostering innovation, and retaining talent.
As India strives to become a digital powerhouse, the government must recognize the transformative potential of Web3. A progressive, equitable tax regime is essential to unlock the sector’s growth, reverse capital flight, and position India as the Web3 capital of the world. With the Union Budget around the corner, the time to act is now.
(The author is Chairperson, Bharat Web3 Association)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
Source
