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Crypto tax: Will investors get relief with 10,000 exemption in TDS?

Majority of cryptocurrency investors have felt burdened by the new tax regime. (REUTERS)Premium
Majority of cryptocurrency investors have felt burdened by the new tax regime. (REUTERS)

  • The 30% tax rate on virtual currency assets has come into effect from April 1 and the latest addition was 1% TDS from July 1 this year. This has impacted trading volumes on cryptocurrency exchanges in India. Meanwhile, investors' confidence has also taken a toll.

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Making gains on your hard-earned investment isn't always handy or is placed on your plate easily especially when your money is invested in cryptocurrencies. Just like every other investment, income from other sources does come with a host of tax rules and true returns are only calculated after these taxes are paid. Taxes are one of the obligatory requirement that boosts the country's revenue. However, there is always a little escape on your tax payments in the form of tax exemptions although they are always in limited forms, they are meant to give some reliefs. The case is same with India's cryptocurrency market which is recently saw a 30% tax rate along with a 1% TDS. The latest to come into effect is TDS and it gives a 10,000 tax exemption. The real question is, does the tax benefit really helps investors.

The 30% tax rate on virtual currency assets has come into effect from April 1 and the latest addition was 1% TDS from July 1 this year. This has impacted trading volumes on cryptocurrency exchanges in India. Meanwhile, investors' confidence has also taken a toll.

1% TDS is set to be deducted from any Indian resident who is transferring their virtual digital assets (VDA). Simply put, an Indian citizen selling their assets in either Bitcoin, Ethereum, Tether, BNB, Shibu Inu, Solana, or Dogecoin among others including NFTs, metaverse will receive 1% less the value of its assets at the selling price.

The impact of 1% TDS on investors' cryptocurrencies is seen as marginal, however, there is a catch. Majority of cryptocurrency investors have felt burdened by the new tax regime. 

Punit Agarwal, Founder, and CEO, of KoinX, said, "TDS will have a marginal impact on investors who are having a long-term horizon and are not actively trading. However, the impact will be significant for traders and scalpers since it will effectively block a large part of the capital."

Last week, a survey carried out by WazirX and Zebpay revealed that 83% of traders believed the recent tax implementation deterred their trading frequency. Additionally, around 24% of respondents are contemplating shifting their trading activities to international exchanges owing to the high taxation. Further, 29% of the respondents traded lesser than the pre-tax period.

As said, under Income Tax rules, there is some exemption given on investments in various instruments. The case is the same for TDS on cryptocurrencies.

For instance, tax deducted at source (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.

Furthermore, there is a TDS exemption of 10,000 in a fiscal year is applicable to any person who does not fall under the category of 'specified person'.

"This limit of Rs.10,000 (Rs.50,000 in case of specified person having no Income from business/Profession or having business/Profession Income upto 1Cr/50L) is annual limit. However, various Indian exchanges have taken a view of deducting TDS even if the transaction is below this limit. Hence, there is no benefit as such," Agarwal added.

But it needs to be noted that when a TDS is cut from an individual's salary, house property, capital gains, business & profession, and income from other sources. There is a possibility to claim the amount by filing an income tax return (ITR).

TDS deducted under 194S can be set off with the tax payable when filing ITR and in case TDS exceeds tax payable. Refunds can be claimed for such excess amounts, Agarwal added.

The cryptocurrency market has been battling a stubborn global bearish tone due to macroeconomic uncertainties - that have led to wiping out the wealth of many hedge funds, crypto exchanges, and investors sharply.

As per CoinMarketCap data, the global crypto market cap is around $910.65 billion on Monday down by 1.62% over the last day. In volume terms, the total crypto market currently witnessed a decline of 5.62% to $49.89 billion transactions over the previous day. Bitcoin has fallen back below $21,000.

Bitcoin trades at around $20,460.81 down by 2.11%. Its dominance has dived by 0.24% to 42.81% over the day. Ether trades around $1,144.89 lower by 2.18%. Bitcoin is the leader of cryptocurrencies in terms of market share followed by Ethereum.

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