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Nithin Kamath has a warning that cryptocurrency volumes will drop off the cliff now that the Budget has introduced 1% TDS on virtual digital asset transactions.

"They say the devil is in the details. I missed the 1% TDS on all Crypto trades, similar to the TCS of 0.1% on Gold. I assumed that the TDS is only on the gains. With this 1% TDS, I think Crypto volumes in India will drop off the cliff come July 1st 2022 when it is implemented," the Zerodha CEO and co-founder, who is known for his educational tweets on markets and business, said.

The long awaited clarification on taxation of cryptocurrency has been brought in the Finance Bill 2022. The virtual digital assets (VDAs) will be taxed at a special rate of 30% of the gain on sale of such assets. Benefit of basic exemption limit is also not available. No deduction in respect of any expenditure other than cost of acquisition shall be allowed. Also, TDS at 1% shall be deducted on the transaction value from 1 July subject to certain conditions.

Kamath, in this backdrop, said volumes are bound to drop and spreads can widen significantly and it will end up creating a snowball effect.

"A 1% TDS means 1% of every trade value is blocked by the platform. So in 50 trades, 50% of the account value can be blocked for TDS regardless of the P&L. Volumes are bound to drop and spreads can widen significantly. This will end up creating a snowball effect," Kamath said.

Of course, if there are no profits, TDS will be refunded once the income tax returns are filed. But traders would need to declare crypto income. With all the crypto celebration post-budget, reminds me of the saying, "Saanp bhi Mar jaye aur lathi bhi na toote", he added.

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