Crypto tax: How 1% TDS will be cut when traded in Bitcoin, Ether, other tokens
4 min read . Updated: 02 Jul 2022, 05:58 PM IST
PremiumSome believe that this would discourage investment in cryptocurrency, it would be detrimental to the industry. While many cryptocurrency platforms in the country have started to implement the move and educate the investors.
After a 30% tax rate, cryptocurrencies will also face a 1% tax deducted at source (TDS) in India effectively from July 1. It means, that an Indian citizen selling their assets either Bitcoin, Ethereum, Tether, BNB, Shibu Inu, Solana, and Dogecoin among others will receive 1% less the value of its assets at the selling price. Experts are of mixed opinions in regards to the new TDS. Some believe that this would discourage investment in cryptocurrency, it would be detrimental to the industry. While many cryptocurrency platforms in the country have started to implement the move and educate the investors.
1% TDS will be deducted from any Indian resident who is transferring their virtual digital assets (VDA). However, the CBDT has exempted a certain amount from the TDS. For instance, TDS will not be deducted if the consideration is ₹50,000 in a financial year for a specified person who is - an individual or Hindu Undivided Family (HUF) who does not have any other income under “profit and gains of business or profession"; and 2) an individual or HUF having income under "profits and gains of business or profession" whose gains from business carried on by him does not exceed ₹1 crore or in case of profession exercised by him does not exceed ₹50 lakh.
Meanwhile, TDS exemption is up to ₹10,000 in a fiscal year applicable to any person other than a 'specified person'.
On the TDS rule, Rajagopal Menon, Vice President at WazirX said, "We are complying with the government’s directive on 1% TDS and the updates on our exchange and P2P platforms went live yesterday. The new update will ensure that tax deductions are transparent to keep users informed of taxation throughout the crypto buying experience." He added, "Set processes are in place to collect TDS for relevant transactions."
WazirX VP explained that firstly, the TDS collected needs to be paid to the Income Tax Department in INR. For this, any TDS collected in the form of Crypto has to be converted to INR. For ease of conversion and to reduce price slippage, in Crypto to Crypto transactions, the TDS for both sides would be deducted in the quote (or primary) Crypto asset.
The cryptocurrency trading platform, WazirX currently has 4 quote assets- INR, USDT, BTC, and WRX.
Menon said, for example, in the following markets: MATIC-BTC, ETH-BTC, and ADA-BTC, BTC is the quote Crypto asset, and hence the TDS of both the buyer and seller trading in these markets would be deducted in BTC.
Here's a brief example of how TDS will be deducted as per the WazirX expert.
If the cryptocurrency is transferred in INR markets: 1 BTC traded for 100 INR. BTC seller receives 99 INR (after 1% TDS deduction). BTC buyer receives 1 BTC (no TDS deducted).
If the asset is traded Crypto-Crypto markets: 1 BTC sold for 10 ETH. BTC seller receives 10 ETH by paying 1.01 BTC (after 1% TDS addition). BTC buyer receives 0.99 BTC (after 1% TDS deduction).
If the asset is dealt n P2P trades. 1% TDS would be deducted before a USDT sell order is placed. Therefore, no TDS has to be paid by the P2P USDT buyer.
Giving example, Menon explained that the seller places an order for selling 100 USDT. Post 1% TDS deduction, a sell order would be placed for 99 USDT. The buyer would pay 99 USDT, and the corresponding INR would be transferred to the seller’s bank account by the buyer.
However, if the entire 99 USDT is not successfully sold, then 1% TDS would be deducted only in proportion to the amount sold, and the remaining 1 USDT locked for TDS would be released back to the seller on order cancellation.
"At present, it is still premature to predict the ramifications of TDS. We will be in a better position to understand this by the second week of July. Our focus is more on adhering to the new taxes rules and meeting the required standards that are being set. There has been a fall in trading across the industry as investors shift to hold and there may be another dip as traders see their capital getting locked while trading on KYC-compliant Indian exchanges," Menon added.
Amajot Malhotra, Country Head of Bitay believes the TDS rule will discourage the innovators who are promoting India as an Innovative hub for the industry. He believes, the Indian government will also lose the possibility of earning huge tax revenue due to a decrease in cryptocurrency transaction volume on platforms.
"The recent provision of 1% TDS on crypto transactions is a modern instance of a tax provision that would be highly detrimental to the crypto industry. The tax provision will not only discourage the innovators who have been doing a great job in promoting India as an Innovative hub for the industry, but the government too will be at a loss as they will lose out on the possibility to earn massive tax revenue due to overall decreased transaction volumes on crypto platforms," Malhotra said.
When the 30% tax rule came into force, there was a massive decline in cryptocurrency trading on Indian platforms. Also, the tax rules discouraged confidence in the market to the point investors were actually losing interest in cryptocurrencies. However, the panic selloff that has led to a bloodbath in the global crypto market since May due to current macroeconomic uncertainties further added to the woes.
According to CoinMarketCap, on Sunday, currently, the global crypto market cap is down 0.12% to $864.13 billion over the last day. In volume terms, crypto transactions dropped by a whopping 24.40% to $55.51 billion over the last day. Bitcoin struggled below $19,200 and its dominance was around 42.3$. Ethereum floated around $1,045. BNB dived 1.5%, while XRP was marginally down. USD Coin, Binance USD, and Tether traded broadly flat. Cardano, Solana, and Dogecoin outperformed by gaining from 1-4%.
