Key Highlights
- Chenoy proposed reducing the current 1% TDS on virtual digital assets to 0.1% to maintain transaction tracking while restoring market liquidity.
- The industry is seeking the ability to offset losses against gains across different digital asset transactions to align with standard financial practices.
- Providing regulatory clarity and tax certainty is essential to prevent the migration of Indian Web3 talent and capital to offshore jurisdictions.
Bharat Web3 Association (BWA) Chairperson Dilip Chenoy outlined priorities for the Virtual Digital Asset (VDA) and Web3 industry during an Egrow Foundation pre-budget webinar on January 3. The session was attended by government advisors and economists.
During his address, Chenoy focused on the role of digital asset regulation in achieving the government’s broader ‘Viksit Bharat’ vision of a developed economy.
Driving GDP through manufacturing and services
Chenoy addressed the fiscal concerns the industry faces today while aiming for 25% of the GDP for manufacturing and new services. He talked about the need for fair taxation and administrative treatment to ensure a sustainable ecosystem and emphasized establishing timelines for settling income tax appeals.
This would help reduce litigation and create more certainty for businesses. He also pointed to high tax rates and a complex system as key obstacles to progress in the digital asset sector.
Proposals for working capital
One of the key proposals was to exempt business-to-business (B2B) payments from TDS and TCS if they are already recorded under other tax frameworks.
Chenoy emphasized B2B payments, saying, “We should consider exempting business-to-business payments from TDS and TCS if they are already reported under the goods, which would help free up working capital and lessen the compliance burden on corporate and manufacturing taxes.”
He added, “I am focused on tax certainty and simplification. Even with Mr. Sajjit Pai present, we need to encourage investment and manufacturing, tackle MSME issues, and address AI, Web3, and emerging technologies.”
The chairperson also discussed the need to adjust specific tax rates that apply to the sector. He stressed that for India to unlock its economic potential, tax policy should support technological growth and capacity building instead of holding it back.
The impact of current fiscal policies
Chenoy noted that the VDA industry is experiencing strain caused by the current fiscal policies. From 2022, the VDA industry is subject to a 30% flat tax on VDA income and a 1% TDS on transactions. It is believed that the VDA industry is compelled to perform trade volumes on offshore trading platforms.
This practice makes the VDA industry opaque for Indian regulators, thereby reducing the Indian market’s overall liquidity. The Egrow Foundation webinar was a platform for the argument that the current tough climate is contradicting the overall goals for digital leadership.
Reversing the Web3 brain drain
These recommendations may prove instrumental in turning around the “brain drain” situation prevailing in the Web3 sector in India because of capital flight. If the Ministry of Finance accepts the recommendations for tax simplification and lower TDS rates, we could see a resurgence of domestic innovation and institutional involvement.
They could better integrate the VDA sector into the formal economy, giving the government improved data visibility while allowing firms to reinvest in research and development. The proposal seeks a balanced approach between regulation and innovation.
Strengthening India’s global tech position
By addressing the issues, Dilip Chenoy said targeted reforms could help strengthen India’s position in the global frontier technology landscape. He said, “We should also consider extending this for new manufacturing units, potentially expanding to global capacity centers and fresh investments and capacity growth for existing firms.”
However, India is already working toward a better crypto space within the nation. Recently, 49 crypto exchanges have registered with the Financial Intelligence Unit (FIU), bringing most of India’s digital asset platforms under the anti-money laundering law.
The success of these suggestions will rely on whether they are included in the upcoming Union Budget to help achieve the larger vision of a technologically advanced India.
Also Read: India’s ED Raids 9 Sites to Crack Down on Fake Crypto Syndicate
