With the Union Budget 2025 on the horizon, the crypto industry in India is pinning hopes on the fact that Finance Minister Nirmala Sitharaman may announce a slew of measures to streamline the new-age industry, which is affected by heavy taxation and an uncertain regulatory environment.

Last year was one of the biggest years for the crypto industry globally. As the Trump administration courted the support of crypto players in the U.S., the popularity of some digital assets also soared. The world's biggest crypto in terms of m-cap, Bitcoin, touched the historic mark of $100,000, while other prominent digital assets also saw a strong rally.

Now U.S. President Elect Donald Trump's promise of a "Bitcoin reserve" and his push towards improving the regulatory environment around crypto have led to a strong enthusiasm around its prospects. US-based IT majors like Microstrategy invested more than $29 billion into Bitcoins, which are now valued at more than $44.5 billion. Bitcoin ETFs also saw wider approval and strong inflow in 2024, which played a central role in integrating digital assets into mainstream finance in the US.

Amidst this, the Indian crypto industry is also hoping for some relief in this year's Budget. Their main demands are a clear regulatory framework, a reduction in heavy taxes on crypto assets, and treatment of the crypto industry on par with other industries operating legally in the country.

Here's a lowdown of some of the key expectations of the crypto industry from this year's budget.

Reduction in TDS

The industry stakeholders say the virtual digital asset (VDA) industry in India has immense potential to contribute to the nation’s digital economy. However, to fully harness this opportunity, the Budget must refine taxation policies. This, they say, will foster both growth and compliance within the sector.

"We propose a reduction in the Tax Deducted at Source (TDS) on VDA transactions from the current 1% to 0.01%. This adjustment would significantly ease compliance challenges and promote market transparency while ensuring the tracking and tracing of transactions and boosting tax revenues. Additionally, we recommend raising the TDS applicability threshold from INR 10,000/50,000 to INR 5,00,000. This would protect small investors and traders from undue tax burdens, ensuring fair treatment across the board," says Ashish Singhal, Co-founder, CoinSwitch.

Tax structure similar to other asset classes

To further support the industry’s growth, Singhal has advocated for aligning the taxation of crypto income with other asset classes and removing the current, what he calls, "discriminatory" treatment. "Allowing taxpayers to set off or carry forward losses, as permitted under capital gains provisions, would establish parity and create an environment for innovation. We are hopeful that the government will recognise the VDA industry’s potential and take steps toward balanced and progressive policies that enable its growth," he says.

Sumit Gupta, Co-founder, CoinDCX, agrees, saying that the Indian virtual digital assets (VDA) industry has immense potential to drive economic growth, but the current taxation framework is "unintentionally" pushing users and trading volumes to offshore platforms. He cites the example of a 1% TDS on VDA transactions under Section 194S, which he says has created liquidity issues and discouraged domestic participation. "Reducing TDS to 0.01% and ensuring uniform compliance for all platforms, including offshore entities, can curb this migration, boost tax revenues, and make India’s VDA ecosystem more competitive," says Gupta.

Avinash Shekhar, Co-Founder & CEO of Delhi-based crypto exchange Pi42, says with Bitcoin and the crypto market making impressive gains on a global level, Indian investors are missing out on opportunities because of the high taxation regime currently in operation. "Tax lowering would empower Indian investors to invest in this growing industry for higher returns, which will stimulate financial growth and innovation within India. For the development of the crypto industry in India, I believe that the Union Budget 2025 should target the reduction of tax on virtual digital assets below 30% and cut the TDS on all transactions from 1% to 0.01%."

Vikram Subburaj, CEO, Giottus Crypto Platform, also agrees that the current 30% tax on profits and 1% TDS on VDA transactions have created friction in trading volumes and reduced market depth. "A data-driven revision—potentially reducing TDS to a more feasible 0.01%—would enhance liquidity and ensure compliance without burdening retail investors."

Comprehensive regulations needed

The industry stakeholders have demanded comprehensive regulations, including a licensing framework, to protect consumers and foster innovation in the crypto space in India. "India can learn from global examples like Singapore and Switzerland to strike a balance between regulation and growth," says Gupta of CoinDCX, adding that the upcoming budget is a critical opportunity to address these challenges and strengthen the domestic crypto ecosystem.

Shekhar of Pi42 says it's equally important to provide provisions for the set-off and carry-forward of losses in VDA transactions. "These reforms seem necessary to create a level playing field for crypto investors and traders. Lower taxes will boost compliance. Such reforms will reshape the industry and prevent investors from moving to exchanges abroad. India could lead the global Web3 and blockchain renaissance, especially if a fair and friendly tax regime is put in place, ensuring the inclusion and regulation for all investors."

Follow the global lead

Subburaj, CEO of Giottus, says the 2025 Budget presents a pivotal moment to recalibrate India’s approach to virtual digital assets (VDAs) and blockchain innovation. This is pertinent as the U.S., the E.U., and other markets have already undertaken substantial steps to regulate crypto.

He says the regulatory certainty will enable tax collection from a larger pool. "Policy clarity on the offsetting of losses and taxation parity with other asset classes could foster a conducive environment for long-term capital inflows."

From a macroeconomic perspective, fostering blockchain adoption through fiscal incentives (research grants and public-private partnerships) could catalyse growth and leadership across fintech, DeFi, and supply chain sectors, adds Subburaj. "For India, a forward-looking regulatory stance can secure our place as a Web3 powerhouse in the global arena."

Manhar Garegrat, Country Head, India & Global Partnerships, Liminal Custody, says the biggest ask from the budget is basic rationalisation of taxation on virtual digital assets. "While there are several takes on taxation that vary from country to country, I would like to cite the example of Australia which has very clear tax guidelines on digital asset transactions and allows completely tax free (yes, zero tax, capital gains or otherwise) superannuation investments into Bitcoin for pension purposes, provided the asset remains untouched until retirement by the investor. They have clear demarcation for taxes applicable to traders and investors and have guidelines to distinguish a trader from an investor along with differentiated tax rates."

Manhar adds that India’s crypto tax is robbing investors of a once-in-a-lifetime opportunity to be a part of a global phenomenon.

Current status of crypto industry in India

Indian government’s approach to crypto also remains “cautious”. Cryptos are not regulated in India, meaning investors trade at their own risk. The government has said it has no plans to bring a law to tax crypto transactions -- though there's a 30% tax on overall profit and 1% TDS -- leaving its future uncertain in India.

The government in March 2023 had brought digital assets under the purview of the Prevention of Money Laundering Act, 2002 (PMLA). Income from these assets is also taxed under the Income-tax Act, of 1961, and different aspects of the VDA sector are regulated under the Information Technology Act, of 2000, and the Companies Act, of 2013.

During India’s Presidency of the G20 last year, the International Monetary Fund (IMF) and Financial Stability Board (FSB) Synthesis Paper, along with the ‘G20 Roadmap on Crypto Assets,’ was also adopted. The paper provided a comprehensive policy and regulatory framework for crypto assets, addressing risks, including those specific to emerging markets and developing economies.