Role of technology in automating, streamlining, and enhancing compliance for crypto taxation in India
By Raghuram Trikutam
Tech & Taxes- An Introduction
If we go back to the fourth industrial reform and dive deep into it, it was based on the foundation of technological expansion and accessibility. While all sectors progressed rapidly, on the backdrop the tax landscape was fueling up the foundation of development, government spending, public services & more. As tech got in a huge money flow and the economy started booming, tax laws around the world strengthened at a very high pace in order to keep up with the era of digitalized business models, encouraging transparency and seamless exchange of taxpayer information.
If we zoom out on the tax reforms since 2000 built on technology, we see a timeline that forms the backbone of the economy. As a country, we have come a long way since 2002, when the computerized processing of returns was introduced and subsequently in 2006 when the project for enabling electronic filing (e-filing) of Income Tax Returns was launched. In 2022, with the emerging web3 economy, the government introduced the Taxation of Virtual Digital Assets. While it has mixed reactions it is a great start towards making the economy more inclusive and robust.
Digitalization, Is that it?
As the space digitalized completely, a lot of young start-ups entered the space from 2011 onwards, as the government introduced e-filing and e-payment gained pace which simplified the taxes and introduced filing at a click of a button.
As the start-ups started booming and clocking an annual revenue of over 3 crores and acquiring the masses with a single tax filing fee of as little as Rs. 130, the VC interest increased, 2015 onwards was also the era where VC poured money into Tax Tech.
Looking closely, these start-ups were trying to solve the problem of “6 crore people paying the taxes for 138 crore of people” and help the taxpayers navigate through the complexity of direct taxes, indirect taxes, next-generation taxes & other taxes and the various slabs under each.
2022 & Beyond
In 2022, the India Government also introduced the taxation of Virtual Digital Assets to be taxed at 30% without being set off against any other income or allowing any deductions apart from the acquisition cost.
According to NASSCOM report, the crypto user base is expected to reach 1 billion by 2030, with a current on-chain value of $88 billion. Despite the bear market in 2022, VC funding in Web3/crypto reached nearly $15 billion in Q1, already half of 2021. India accounts for 11% of the global talent in Web3, with a 138% rise in Crypto jobs since 2018. To maximize the potential, digital asset taxes should be made more crypto and entrepreneur-friendly to avoid missed opportunities. Simplifying the tax filing process and investment experience through user-friendly platforms can eliminate confusion and fear among investors dealing with crypto complexity.
Conclusion- The world is bullish on the Indian ecosystem and rooting for us, while this is a perfect opportunity for the country as all our stars align with the best tech talent, infrastructure and great timing. Revolutionary tech takes time to seep into the core and India being such a diverse economy will need time to adapt, educate and overcome. The public and private sectors together form a strong base to kindle Web3 in India and embrace a risk-based regulatory approach to skyrocket the transformative technology. On the other hand, Indian entrepreneurs and builders will always be at the forefront to unravel diversity, ease and accessibility and ship great products even at the peak of the bear market.
On a greater than just taxation note, Web3 has the power to enable startups, policy experts, investors, large companies and government entities to come together and make the system more efficient and inclusive.
The author is CEO, Descrypt
