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Tax on Cryptocurrencies: What will be the effect of one percent TDS on crypto investors, know what experts say

Tax on Cryptocurrencies : In the Budget 2022 speech, Finance Minister Nirmala Sitharaman announced 1% TDS on transfer of all virtual digital assets, although there is a lack of detailed and complete information on this. Crypto community and market experts in the country believe that this decision of the government will affect crypto trading activities. During the press conference, Sitharaman said that TDS of 1 percent has been imposed on crypto currency so that crypto related transactions can be monitored. As of now no system has been made for regulation of cryptocurrency, so TDS is being used.

In addition to 1% TDS, Sitharaman also announced 30% tax on income from transactions of digital virtual assets, including crypto and NFTs. Experts believe that these decisions of Sitharaman have removed the uncertainties from the minds of investors and traders who had earlier feared a ban on crypto activities.

What is the opinion of experts

  • Dilip Seinberg, Founder and CEO, ThinkChain, told FE Online, “The 1% TDS is modest in comparison to charges on other services in India. There was a fear in the minds of investors that crypto could lead to jail or whether to start a crypto venture or not? I think it is the fear of uncertainty. Investors will welcome this move, especially now that mainstream companies and institutional investors can easily participate in crypto ventures.”
  • Explaining this with an example, he said, “Suppose a trader makes 10 transactions worth Rs 10 lakh every day. In this case, he will have to pay Rs 10,000 x 10 transactions = Rs 1 lakh at the rate of 1 percent TDS. However, there is no 1% fee charged for trading within the platform. It’s like IMPS to someone else.”
  • According to EarthID’s VP of Research and Strategy, there is a lack of clear guidelines on how to implement TDS. He further added, “Some investors have already transferred their digital assets outside India. This is likely to have an adverse effect on trading. Crypto investors will shift to a peer-to-peer trading model and prefer de-centralized exchanges over centralized exchanges. Intra-day trading on exchanges will be affected as TDS on many trades means there will be a substantial cut in trading income.”
  • Vikas Singhania, CEO, TradeSmart said that 1% TDS rule is discouraging trading in the asset class. He said, “This will definitely affect the trading volume. If a trader makes 10 trades in a month, then he will have to earn at least 10 percent of the total on these trades, then only he will be able to recover the TDS cost. Brokerage and GST charges have made trading in cryptocurrencies more difficult.” Singhania said that this will make it difficult to make profits from cryptocurrencies.

Trading volumes will be affected on major exchanges

According to Gaurav Mehta, founder of online crypto auditing and taxation software Catax, the 1% TDS rule will impact trading volumes on major exchanges. “I believe that trading volumes on major exchanges, where liquidity is provided by market makers and third parties, will be significantly affected, as 1% TDS will be a deterrent for artificial liquidity providers,” Mehta said.

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