India’s crypto community who were rooting for regulatory clarity got their wish fulfilled when the government recently announced to legalize digital assets and levy 30% tax with no deductions or exemptions with effect from April 1, 2022. But now a section of them feels the TDS [tax deductible at source] aspect is counterproductive.
As per sources, members of the Blockchain and Crypto Assets Council [BACC] view that the 1% TDS tax-deduction to every single transaction involving crypto, would drive small traders towards informal Person to Person [P2P] trading and decentralized exchanges [DEX].
On 5th February 2022, BACC convened a meeting where major crypto exchanges took part and had a discussion on the matter. Following this, the industry body has decided to get in touch with relevant policymakers and apprise them about the issues arising out of the proposed TDS structure by the government.
How does the proposed TDS affect India’s crypto ecosystem?
According to the Finance Bill, a new section 194S will be added from July 01, 2022. Any Buyer of Crypto will have to deduct 1% of the payment to the seller.
An Indian tech-consultant-Naimish Sanghvi wrote a detailed post on his Twitter where he pointed out TDS’s lack of clarity on implementation in case buyers trade on centralized exchanges and place orders on an open order book or International exchange trading which has no such provision.
In both the cases, Sanghvi wrote ‘Buyers have no clue who the seller is. Who deducts the TDS? Who pays it to the Government?’
Apart from that, the industry body feels that the most affected would be the day traders who make multiple trades per day, often with small margins. Therefore, the volume of the TDS payouts could be huge and stands at a higher chance of running out of capital.
Sumit Gupta, CEO & co-founder of CoinDCX, a member of BACC stated,
“Specific sections regarding TDS are still confusing. We believe multiple discussions are needed to come up with better systems or processes. We are very hopeful that the right actions will be taken. We are happy that the industry has got clarity and confidence. However, I would also like to point out that it’s two steps forward and one step back.”
Having said that, BACC is planning to hold several ‘knowledge sessions’ for legislators to brief them about the workings of the exchanges and the taxes implications on their revenue models.