Cryptocurrency Taxation in India: A Critical Analysis

Abstract

While the Indian public has grown quite fond of cryptocurrency in recent times, ambiguity still persists; specifically with respect to taxation. The primary reason for the same is unclear regulations. In 2022 India introduced a tax structure for virtual digital assets (VDAs) that included a 30% tax on gains along with a 1% TDS for transactions exceeding specified thresholds. The perplexity emerges primarily from India's ambiguous cryptocurrency tax regulations combined with compliance challenges. The existing framework regrettably fails to achieve both clarity and fairness by indiscriminately categorizing all digital assets as VDAs without distinguishing between cryptocurrencies, utility tokens, and non-fungible tokens (NFTs), which results in additional complications for tax treatment and compliance. This paper suggests reforms such as clearer asset definitions, revised tax rates to promote long-term investment, and simplifying the TDS process. It has called for the establishment of a regulatory authority in order to attain uniformity in taxation and trust of investors, with a view toward bringing alignment between India's cryptocurrency market and the globe.