1% TDS on All Digital-Asset Transfers in India — What Does It Mean for Crypto Traders ?
After years of back-and-forth, Indian Government announced a 30% tax on income from digital assets from April 1 2022, which received a warm welcome from the industry fearing a blanket ban. However, the crypto-experts are in splits regarding the new 1% levy.
Along with the capital gain charges announced in February 2022, the finance ministry has additionally levied 1% TDS(Tax Deductible on Source) on all digital asset transfers above a certain size.
Under the new regime, the buyer must deduct 1% TDS on behalf of the seller if transaction exceeds 10,000 Rs. Smaller trades will be taxed if they top a cumulative 50,000 Rs. in a financial year.
TDS on multiple trades would mean a substantial deduction on trading income.
While it may not affect investing volumes, trading volume in the sector will be surely take a slump.
If a trader takes 10 trades in a month, he will have to earn at least 10 percent on these trades cumulatively, just to recover the TDS cost. On top of it, the brokerage, and GST charges have added more risk to trading in cryptocurrencies.
Whatever residual profits are left will now be subjected to capital gains and other charges, making a profitable living off cryptocurrencies more difficult.
Why Such A Harsh Tax Regime?
The Finance Minister said the TDS will allow the government to track the transactions and it shouldn’t be seen as a levy.
In opinion of crypto experts, if the sole purpose is to track the transactions, a much smaller rate will serve the purpose equally and it won’t jeopardise the decentralised exchanges at the same time.
As one can clearly see, enforcing the TDS system will be a great task when it comes from the offshore trading plartforms. Thus, it will push the trading off the locally-based exchanges.
While the 30% tax on the capital gains is already taking the charm away for crypto investors, the additional TDS will shoo off them from the market even farther. And, it may bring investors even closer to the stock markets, where ironically no such tax regime is levied.
It’s almost a choke-slam for the liquidity of crypto market. A high frequency trader, who trades in multiple digital-assets, the overall trade becomes less lucrative with loss of almost 60% capital in .
Also, India will frame a legislation for cryptocurrencies only after a global consensus emerges on regulating such assets. It is forewarned that entrepreneurs are decamping for more crypto-friendly destinations despite India being a great market with estimated 15 million active crypto-users.
All in all, in the absence of clear guidelines on how to implement TDS, the 1% TDS rule on transfer of virtual digital assets is going to be a compliance nightmare for both investors as well as centralised exchanges.
