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Manhar Garegrat, Country Head, India & Global Partnerships at Liminal Custody Solutions

As India strides towards the forefront of the digital asset revolution, secure custody solutions are laying the foundation for a new era of financial inclusion. However, unlocking the full potential of this transformative asset class demands a robust ecosystem built on clarity, innovation, and talent. The upcoming Union Budget 2023 presents a pivotal opportunity to pave the way for a thriving digital asset landscape, and Liminal proposes the following key expectations:

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.

Shivam Thakral, CEO of BuyUcoin, India’s second-longest running digital asset exchange 

The Indian crypto industry stands between boundless potential and frustrating limbo. In the upcoming budget, we urge the government to replace uncertainty with clarity, not with a heavy hand but with a guiding light. A well-defined legal framework can unlock trust and fuel growth. This framework should address taxation complexities, establishing clear guidelines for income and transactions, not as barriers but stepping stones. Exchange licensing protocols should not be shackles but a badge of honour, ensuring responsible participation.

Seamless integration with traditional finance is possible by fostering collaboration and driving mainstream adoption. We understand the need for investor protection, but overzealous regulations could hurt our nascent ecosystem. Let's find the sweet spot that fosters innovation while ensuring responsible participation, allowing India's crypto industry to bloom, attract global players, and nurture domestic startups.

Clarity alone isn't enough. Imagine India as a fertile field; crypto and blockchain are the seeds waiting to sprout. We need tax incentives and sandboxes to nurture these seeds into thriving startups. Sandbox initiatives need protection to foster experimentation. This will create a new generation of jobs, propel India into the global DeFi and blockchain space, and unlock economic growth. By embracing crypto with vision and collaboration, India can lead the world towards a digitally inclusive financial future, leaving competitors in the shade.

Om Malviya, President at Tezos India, a blockchain adoption entity 

While India's potential in blockchain is undeniable, it faces many roadblocks. Ambiguity around legal status hinders startups as they hesitate to navigate uncharted territory. Tax complexities leave them burdened and their wings clipped before they can soar. Talent that fuels innovation remains scarce, creating a bottleneck within the ecosystem. The upcoming budget holds the promise to remove all these roadblocks and clear the path.

The taxation around digital assets, especially the TDS on transactions should be revisited by the relevant authorities. The exemption limit short term capital gain tax should be relaxed to make digital assets more user friendly. 

A comprehensive framework embracing diverse applications, from healthcare record-keeping to secure voting systems, is the need of the hour. Clear taxation guidelines and talent development initiatives targeted at building a skilled workforce would propel nascent startups. Sandbox projects and government collaboration will nurture trust and bridge the theory-practice gap, transforming ideas into tangible solutions. Embracing blockchain is not just an economic decision; it's a chance to empower millions with unprecedented transparency, efficiency, and security. It's about building a future where trust replaces mistrust, and everyone has a seat at the innovation table.

The upcoming budget holds immense significance for India's growing blockchain ecosystem. We call for clearer regulatory pathways. A comprehensive framework embracing diverse use cases, from healthcare and supply chain management to governance and identity verification, would unlock transformative potential. Tax incentives for blockchain-based startups and R&D initiatives would attract global talent and foster an environment of innovation.

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