India is the largest democracy in the world with a thriving web3 ecosystem. WazirX's, India’s largest crypto exchange, annual trading volume exceeded $43 billion in 2021 (1,735% growth YoY). The Indian government's announcement was a welcome surprise to the web3 community - here are call outs.
- 30% tax on income from transfer of virtual digital assets: intended to be a deterrent for crypto activity.
- No deduction of expenditure: you cannot offset your gains with gas fees, a win for blockchains with low gas fees. If you mine, you cannot offset your costs of mining (electricity etc).
- No offset of losses against other income: if you make a Rs. 100 loss on crypto, this cannot be offset against a Rs. 1,000 gain on the stock market.
- 1% tax deducted at source (TDS) for payments: the primary motivation for this is know your customer (KYC). If tax is deducted at source, you have to provide details before making a payment via crypto.
- Recipients will be taxed for gifts: this prevents citizens from using crypto as a tax-free method of transferring value to someone else.
- Issuing a central bank digital currency: India plans to launch a digital currency in 2022-2023.
What's the verdict?
India wants to deter activity (via tax) until it can figure things out, gather data on crypto (via TDS) and promote the its own digital currency. But overall, this is positive news for the web3 community. This can be the catalyst for India to become a leader in the web3 space, particularly given China's blanket ban on crypto.