According to a report released on Tuesday, India should take into account reducing the 1% TDS on cryptocurrency trade because the current rate is driving users and capital to platforms in other countries and the black market.
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According to the research “Impact Assessment of 1% TDS on VDAs” by Chase India and Indus Law, crypto platforms and exchanges must also do customer due diligence in order to identify any potential future risks.
“The current 1% TDS on cryptocurrency transaction, combined with the absence of comprehensive laws, is causing a flight of capital and consumers to platforms in foreign jurisdictions and the grey market,” it claimed.
A 30% income tax, a surcharge, and a cess on the transfer of virtual digital assets (VDAs), including cryptocurrencies like Bitcoin, Ethereum, Tether, and Dogecoin, were introduced by the government on April 1 of last year.
Also, a 1% TDS has been implemented on payments over Rs 10,000 made towards virtual digital currencies in order to track the money path.
“The TDS’s goal is to provide a record of cryptocurrency transactions, and a lower TDS rate can accomplish the same thing. If Indian investors continued to trade from Indian KYC enabled platforms, a nominal TDS rate would also facilitate tracking and tracing of transactions, thereby aiding in tax collections, according to the paper, which was released only days before the 2023–24 Union Budget scheduled for February 1.
The government should require all cryptocurrency exchanges and platforms to carry out a thorough e-KYC authentication on all dealers and investors in accordance with the Aadhar regulations, according to the report’s suggestions for safety and control.
In their joint analysis, Chase India and Indus Law also noted that while being legally obligated to operate their businesses in accordance with other Indian laws and regulations, many exchanges have not been adhering to the aforementioned TDS guidelines.
It has been discovered that many exchanges use unapproved discretion to exempt this in their business practises. According to the report, this loophole has caused a systemic “grey market” scenario where such exchanges-cum-companies operate outside the reach of taxation.
The study made the following recommendation: “Every exchange/platform must offer and should be required to submit transaction records to the tax regulatory authority. This would make it easier for the tax authorities (CBDT) to compile a list of “legitimate” exchanges that adhere to the TDS standard.
In a response to Parliament, the government stated last month that it had gathered more than Rs 60 crore in TDS for transactions involving VDAs.
According to the paper, “the government will miss out on a potential revenue system created through these trade channels in the absence of certain exchanges contributing to the tax clause.”
“A Self-Regulatory Organization (SRO) can be considered to bridge the regulatory gaps,” a Chase India representative said. It would promote ethical and professional standards among the exchanges, encourage compliance, and safeguard customers’ interests.
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A representative for Indus Law stated, “Strict TDS requirements are encouraging the use of non-tax compliant exchanges to evade taxes. Such covert transactions may serve as a haven for other criminal activity as well as money crime.
(Only the report’s headline and image may have been changed by the Business Standard team; all other material was likely created automatically from a syndicated feed.)
