The call for reducing Tax Deduction at Source (TDS) on crypto transactions is intensifying among the crypto ecosystem players in India. A TDS of 1% on virtual digital assets has been approved by the Union budget 2022-23. Terming this too high as it can drive traders away from the market and hurt volumes, industry representatives are demanding to bring it down in the range of 0.01% to 0.05%.
Unocoin, CoinDCX CEOs Call for TDS Reduction
Sathvik Vishwanath, co-founder and CEO of one of the oldest Indian crypto exchanges, Unocoin (2013), on Tuesday, said in a tweet, “I am nowadays meeting traders who are leaving India just because they cannot tolerate TDS. Govt is not going to achieve revenue this way. Even for Govt, it should be a volume game.”
Last week, Sumit Gupta, co-founder and CEO of CoinDCX, now the highest valued crypto startup in India, said:
“At the industry, we are engaging with the government and have submitted a presentation on how 30% tax and more than that, 1% TDS is detrimental to the growth of the industry. It will lock up capital for traders and suck liquidity from the market. If liquidity is not there, retail investors will suffer.”
Meanwhile, the government is planning a tougher tax environment for crypto businesses. Last week, media reports suggested that Indian tax authorities are planning to put crypto activities under the highest 28% GST slab, usually reserved for non-essential and luxury activities such as betting, gambling, and horse racing.
“We will try to make it simple at our end but we still continue to engage and keep the dialogue open with the government asking them to bring down TDS to 0.01 or 0.05 percent. Income Tax of 30 percent is also on the higher side, which we are requesting them to bring down,” Gupta added.
Income Tax, TDS on Crypto Activities
The Budget 2022-23 brought much-needed clarity about taxes on crypto profits and transactions. A 30% capital gains tax is levied on profits made on crypto transactions without the provision to offset losses. The tax rate is the same as applicable to income from speculative transactions such as horse racing.
It also proposed 1% TDS on payments above Rs 10,000 (Appr. $125) made for the acquisition of virtual digital assets in a financial year. The threshold is raised to Rs 50,000 (Appr. $725) for individuals and families required to get their accounts audited under the I-T Act. The capital gains tax has become effective from April 1, while the TDS will be levied from July 1, 2022.
During the debate on budget proposals in March, some parliamentarians observed that bad crypto regulation will cause an innovation exodus. These remarks turned out to be prophetic as, within the first ten days of the new taxation policy, trading volume at major exchanges dropped significantly.
This, coupled with a denial of instant retail payment services UPI to crypto exchanges by the regulators, added to the turmoil, leading to the closure of trading in INR at Coinbase, WazirX, and CoinSwith Kuber.