Will India’s Crypto Tax Put a Dent in Innovation and Growth of the Emerging Sector?

Cryptocurrency earnings – over the past few years – have encouraged Indians to start investing in digital assets. However, in the latest union budget, the Indian government made coded profits subject to tax cuts. A 30 percent tax has been taken into account to collect all income from digital assets in the country. In addition to the cryptocurrency tax, the government has also planned a 1 percent tax rebate at source (TDS) that will take effect from July 1. The plan to impose TDS is facing criticism especially from crypto exchanges and Indian investors.

To discuss the impact of the crypto tax along with the planned TDS, Orbital host Akhil Arora speaks with Rajagopal Menonand Vice President of the WazirX Currency Exchange and Gaurav MehtaFounder of Catax, a cryptocurrency tax advisory.

Similar to the current capital gains tax, a 30 percent crypto tax is supposed to be levied on all gains from crypto assets. It has been in effect since 1 April.

However, unlike the regular crypto tax, it is planned that a TDS tax of one percent will be levied on all cryptocurrency transactions – not just those that generate profits. This work starts from July, as I said earlier.

The government believes that the withholding tax mechanism for cryptocurrency transactions will help track transactions and prevent tax evasion in the country. It also makes cryptocurrency exchanges responsible for filing tax on behalf of sellers on their platforms.

Cryptocurrency exchanges are asking the government to provide clarity on the implementation of TDS and to lower its price.

“What the one percent TDS does is they wipe out the trading market completely, because what happens is that after about 250-300 trades, it starts to eat up your capital,” Menon says.

The challenges that cryptocurrency exchanges and investors see due to TDS – and other recent crypto regulations – are starting to have a negative impact on cryptocurrency trading in the country. Some Indian stakeholders have also started looking for overseas markets to hold their earnings from crypto assets.

“What the government is unfortunately doing is that because of all these regulations, you will never have an ecosystem around cryptocurrency in India,” WazirX CEO confirms.

It also suggests that ongoing regulations could affect innovation in the emerging crypto sector and in areas including non-fungible tokens (NFTs).

However, Mehta argues that since individuals have not paid tax on their transactions for the past few years, the government should have implemented the TDS tax system.

“India is not a tax-paying country at all,” says Mehta. “It is an individual habit of tax evasion as there will be a fiduciary duty or at least the responsibility of the stock exchanges to pay government revenue by way of taxes.”

You can listen to the full discussion lasting about half an hour by hitting the play button on the Spotify player embedded above.

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Cryptocurrency is an unregulated digital currency that is not legal tender and is subject to market risk. The information in the article is not intended to be and does not constitute financial advice, business advice or any other advice or recommendation of any kind provided or approved by NDTV. NDTV will not be liable for any loss arising from any investment based on any recommendation, forecast or any other information contained in the article.

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