CBDT Seeks Stakeholder Feedback on Crypto Regulations
India’s apex tax body, the Central Board of Direct Taxes (CBDT), is actively engaging with cryptocurrency stakeholders to explore potential changes to the country’s Virtual Digital Asset (VDA) regulations. This move has sparked optimism in the crypto industry, which has long grappled with high taxes, regulatory uncertainty, and a cautious stance from the Reserve Bank of India (RBI).
Why the Change of Heart?
Currently, crypto profits in India face a steep 30% tax, with an additional 1% Tax-Deducted-at-Source (TDS). Unlike other investments, traders cannot offset losses against gains. These stringent rules, combined with a lack of clear regulation, have prompted many significant investors to move their operations to more crypto-friendly jurisdictions like Dubai. The CBDT’s inquiry suggests a potential shift in approach, aligning with the global consensus of regulating, rather than banning, cryptocurrencies.
Key Questions from CBDT
The CBDT has put forward a series of comprehensive questions, signaling a deep dive into the industry’s challenges. The specific queries include:
- VDA Legislation: Is a new, comprehensive VDA law necessary? If so, which agency should be tasked with its administration (e.g., SEBI, RBI, MeitY)?
- Offshore Migration: What percentage of trading volumes has moved offshore, and what are the primary reasons?
- Tax Framework: How does India’s tax framework compare to major jurisdictions, and what has been the impact of the 30% flat tax and the disallowance of loss set-off on market volumes and liquidity?
- TDS Implementation: What are the biggest challenges in implementing the TDS, particularly for peer-to-peer transactions and identifying a counterparty’s residency?
- Derivatives and Reporting: The CBDT is also seeking clarification on derivatives and cross-border transactions and wants to know if platforms are ready for the OECD’s Crypto-Asset Reporting Framework (CARF).
This proactive outreach by the CBDT is a crucial step towards a more robust and clear regulatory environment for India’s growing cryptocurrency market. The feedback gathered could pave the way for a new framework that balances investor protection, tax compliance, and innovation.