After a 'lackluster Budget', crypto startups pin hopes on FinMin’s delayed discussion paper
2025-02-04
Category: None

With a few new proposed additions to the Income Tax Act and no reductions in taxes, the Indian crypto industry was left high and dry in the Union Budget 2025. The startups are now awaiting the much delayed crypto discussion paper to seek clarity.
The discussion paper led by the Finance Ministry's Department of Economic Affairs (DEA) was earlier expected to be out by September 2024, and then was delayed to be released in March 2025. Now after DEA Secretary Ajay Seth’s comments on February 2, the crypto startup founders are expecting further delay.
Seth said that the DEA is relooking at the paper now that several countries have changed their stance towards crypto and there is a wider acceptance. He spoke to Reuters.
An industry source privy to the developments told Moneycontrol, “There has been no discussion on the discussion paper in the IMG (inter-ministerial group) meetings since the new government was formed. For the government, crypto is not a priority and they have decided to wait and watch global developments.”
The DEA, however, has done its homework with all the updates and awaits a final nod from the government to release the discussion paper, the source added.
The discussion paper or the consultation paper once out will seek feedback from industry stakeholders for finalizing a country-level framework for virtual digital assets (VDAs). This is a part of the larger G20 countries’ plan to adopt a common global crypto regulatory framework.
As of now, the International Monetary Fund (IMF) and the Financial Stability Board (FSB) has already released a synthesis paper detailing road map for regulating crypto assets. This was a part of India’s G20 presidency in 2023.
Edul Patel, co-founder and CEO of crypto investment platform Mudrex, who was expecting the paper to be out by March said, “Globally we are seeing that crypto is breaking away into three different pieces. Earlier it was just crypto, now it's bitcoin, stablecoins and crypto decoupled likely to be under control of different regulators. All three are being looked at from a very different lens by regulators, by reserve banks/ central banks and so on and so forth.”
“I expect it (India’s discussion paper) to have broadly this theme that it covers how do you manage and cater to bitcoin, stablecoin and crypto separately,” he added.
This comes at a time when crypto has achieved wide-spread acceptance following the launch of Bitcoin ETFs, Bitcoins crossing $100,000, the US president Donald Trump’s pro-crypto stance and larger institutional adoption.
Implications of IT Act provisions
Closer home though, Indian crypto entrepreneurs are still waiting for an update on reduction in high VDA tax and TDS (tax deducted at source) charged, which has led to exchanges’ trading volumes decimate by over 80-90 percent since its implementation 2022.
At present, taxes on VDAs include a 30 percent tax on income from crypto and other digital assets and 1 percent tax deducted at source (TDS) on every crypto transaction of Rs 10,000 and above in India.
The recent inclusion of crypto assets under Section 158B of the Income Tax Act in India's 2025 budget marks a significant regulatory shift aimed at addressing undisclosed income from VDAs, according to Ashish Singhal, co-founder of crypto investment platform CoinSwitch.
“The amendment formally adds "virtual digital asset" to the definition of undisclosed income, allowing the government to assess unreported crypto gains collectively. This change is intended to enhance transparency and compliance within the crypto market,” Singhal said.
He added, “Entities are now required to provide detailed information regarding their crypto assets under Section 285BAA of the Act. This includes disclosing gains from trading, selling, or swapping crypto assets, which will be taxed at a flat rate of 30% plus a 4% surcharge.”
Additionally, coming under section 158B will also let government agencies to conduct block assessment or investigation of undisclosed crypto income of traders, which if found not reported will amount to as high as 60 percent income tax fine for the entire period of the unreported crypto income, as mentioned under 158BA(7) referring to ‘Tax in the case of block assessment of search cases.’
Punit Agarwal, founder of crypto tax compliance startup KoinX explained that ever since the taxes were implemented in 2022, the users were only reporting their Indian exchange transactions and not the transactions on DEXs (decentralised exchanges) or global exchanges. This made it difficult for the government to track investments happening on offshore exchanges that weren’t compliant to local laws. Hence, the new proposed amendments in the IT Act.“If anything is not disclosed now, the consequences of undisclosed crypto income is very similar to undisclosed cash and gold, where penalty could be 60 percent taxes. My understanding says it is 60 percent tax penalty of the total amount. Then there's an additional 15 percent surcharge and 3 percent interest, effectively making the final amount paid much higher at almost 78 percent total tax,” Agarwal said.