As India eagerly awaits the unveiling of the Union Budget 2024-2025, stakeholders in the Web3, blockchain, and crypto sector are voicing their expectations and aspirations for the upcoming fiscal year. With the digital asset revolution gaining momentum globally, industry leaders and experts are keenly focused on how government policies and initiatives will shape the landscape for innovation, investment, and growth in India. Here’s a look at what these sectors anticipate before Finance Minister Nirmala Sitharaman’s budget announcement.

Budget 2024: Clarity and Innovation in Regulatory Framework

Manhar Garegrat, Country Head, India & Global Partnerships at Liminal Custody Solutions, emphasized the critical need for clarity and innovation in the regulatory framework governing Virtual Digital Assets (VDAs) and tokenization. Garegrat highlighted that the current definition of VDAs lacks nuance and inhibits the potential for India to emerge as a global leader in the digital asset space. He proposes targeted revisions to the VDA definition, advocating for explicit exclusions for tokenized assets with proven underlying value. Such clarity, akin to established precedents like gift card exemptions, is viewed as pivotal in fostering a dynamic and inclusive digital asset ecosystem.

Here are the detailed suggestions that Liminal has proposed for Union Budget 2024:

1. Clarity in VDA Definition and Tokenization

The current broad definition of Virtual Digital Assets (VDAs) in Notification no. 74 of 2022 needs to be more nuanced. The tokenization of real-world assets is a $10 trillion opportunity and we are already witnessing the rapid advancements in the field of tokenized RWAs. There is an urgent need for investment and innovation in these segments, if nurtured with progressive policies, India has the potential to become a global leader in the digital asset space. We urge the government to amend the VDA definition, explicitly excluding tokenized assets with proven underlying value, similar to established precedents like gift card exemptions. This targeted revision will foster a dynamic and inclusive digital asset ecosystem.

2. Removal of 1% TDS

The introduction of a 1% Tax Deducted at Source (TDS) in 2022 led to an estimated loss of $420 million in potential government revenue due to migration of Indian crypto traders to overseas platforms. This highlights the detrimental impact of policies that disincentivize domestic participation in the digital asset market. We propose offering tax breaks for the development of blockchain security infrastructure and the implementation of advanced security protocols. This incentive will attract investment, generate high-skilled jobs, and solidify India’s position as a global leader in secure digital asset custody. Just like stocks, users should be allowed to offset losses related to digital assets which will encourage more startups to enter this space. Government should look at creating special economic zones for Web3 startups and offer tax holidays to startups during initial years so that entrepreneurs can focus on innovation and product development without worrying about cash flows.

3. Prioritising Research and Development

We urge the government to create equal opportunities for Web3 projects by enabling active participation in government sandboxes. The requirements for inclusion in government sandboxes should be more relaxed to create a more inclusive and encouraging Web3 startup ecosystem. Excluding digital assets from such initiatives may not unlock the full potential of blockchain projects and could limit their viability in the long-term. Fostering a culture of innovation in blockchain-based security solutions and compliance tools is crucial to ensure the resilience and sustainability of the digital asset ecosystem. India’s vibrant tech landscape presents an ideal breeding ground for developing cutting-edge technology solutions. We call for strategic investments in research and development (R&D) initiatives specifically focused on digital asset security and compliance. This commitment will empower Indian companies to contribute significantly to global solutions and maintain India’s competitive edge in the digital asset space.

Taxation Reforms to Encourage Domestic Participation

The imposition of a 1% Tax Deducted at Source (TDS) in the previous fiscal year sparked concerns among industry players, including Shivam Thakral, CEO of BuyUcoin. Thakral highlighted the adverse impact of policies that disincentivize domestic participation in the digital asset market, leading to potential revenue losses and migration of traders to overseas platforms. BuyUcoin advocates for the removal of the 1% TDS and proposes tax breaks for blockchain security infrastructure development. Additionally, Thakral stressed the importance of allowing users to offset losses related to digital assets, akin to provisions for stocks, to further incentivize participation and foster innovation.

Fostering Innovation and Collaboration through Research and Development

The experts underscored the significance of prioritizing research and development (R&D) initiatives to drive innovation and competitiveness in the digital asset sector. Garegrat emphasized the need for equal opportunities for Web3 projects through active participation in government sandboxes, urging relaxed requirements for inclusion to foster a more inclusive startup ecosystem. Thakral echoed these sentiments, advocating for sandbox initiatives and tax incentives to nurture experimentation and innovation, ultimately propelling India into the global decentralized finance (DeFi) and blockchain space.

A Balancing Act: Clarity, Innovation, and Responsible Participation

In navigating the complexities of regulatory frameworks and taxation policies, stakeholders in India’s Web3, blockchain, and crypto sector emphasize the importance of striking a balance between clarity, innovation, and responsible participation. While clarity in regulations is essential for fostering trust and growth, it must be accompanied by incentives for innovation, collaboration, and domestic participation. As India seeks to position itself as a frontrunner in the digital asset revolution, the Union Budget 2024-2025 presents a pivotal opportunity to lay the foundation for a vibrant and inclusive ecosystem that embraces the potential of Web3, blockchain, and crypto technologies. 

Om Malviya, President at Tezos India, emphasizes the need for clarity in the legal status of blockchain technologies, citing ambiguity as a significant hurdle for startups venturing into uncharted territory. Tax complexities, particularly the Tax Deducted at Source (TDS) on transactions, are identified as burdensome, stifling innovation and hindering the user-friendliness of digital assets. He advocates for revisiting taxation policies to facilitate a more conducive environment for startups to thrive.

The call for a comprehensive regulatory framework echoes across the industry, with Malviya stressing the importance of embracing diverse applications of blockchain technology, ranging from healthcare record-keeping to secure voting systems. Clear taxation guidelines and initiatives aimed at talent development are proposed as essential drivers for nurturing nascent startups and attracting global talent.

Nurturing Trust and Collaboration

Malviya underscores the significance of sandbox projects and government collaboration in fostering trust and bridging the gap between theory and practice. By providing a conducive environment for experimentation and innovation, these initiatives hold the potential to transform ideas into tangible solutions, empowering millions with unprecedented transparency, efficiency, and security.

As India’s blockchain ecosystem looks towards the Budget 2024, there is a unified call for clearer regulatory pathways, comprehensive frameworks, and supportive policies. The upcoming budget presents a crucial opportunity to address existing challenges, unlock transformative potential, and propel India into a leadership position in the global blockchain landscape. With the right reforms and initiatives, the vision of a future built on trust, innovation, and inclusivity may soon become a reality.

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