After government clarity on TDS, will it be easy for cryptocurrencies in India?


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The problems for the Indian crypto industry seem endless. On February 1, in the Union Budget, the government decided to impose a 30% tax on cryptocurrency income from the new fiscal year and a 1% TDS on all cryptocurrency transactions from February 1. July.

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The move went some way to quell the uncertainty surrounding the fate of cryptocurrencies in India and suggested that it may not be banned as previously feared. But, by then, cryptocurrencies had already entered bear market territory. The drop was compounded by the recent collapse of algorithmic stablecoin TerraUSD.

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Now, the oldest and largest cryptocurrency Bitcoin is trading at its lowest level in 18 months after falling 70% from its all-time highs in November 2021. Total crypto market capitalization is approximately $914 billion, down from a peak of $2.9 trillion.

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Globally, cryptocurrency exchanges are cutting costs and laying off hundreds of employees as trading volumes take a huge hit. Amidst these difficult times, Indian exchanges have reason to rejoice. Although the government dismissed the demand to lower the TDS rate to 0.01% or 0.05%, the Central Board of Direct Taxes came out this Wednesday with the expected clarifications on the applicability of the TDS provisions.

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It addresses some of the concerns raised by the industry and helps exchanges and traders navigate onerous TDS provisions, removing the cloud of uncertainty. The 1% TDS applies to cryptocurrency payments over Rs 10,000 in a fiscal year or Rs 50,000 per year for specified persons, including individuals and HUF who are required to audit their accounts.



Amanjot Malhotra, Country Head – India, Bitay says the biggest point of concern regarding crypto-to-crypto trades has been addressed. It’s good for user experience, but exchanges will have a lot of work to do, he says. People will move towards long-term investing.

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In a peer-to-peer transaction, the buyer must deduct the tax before paying the consideration. In case the transaction is made through an exchange, the exchange may deduct the TDS.

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Exchanges are required to provide a quarterly statement for all such transactions and include them on their income tax returns. CBDT also removed doubts about how crypto-to-crypto transactions are treated for TDS. In such cases, the exchange will have to deduct 1% TDS on both assets of the pair. The tax deducted in kind must be immediately converted into bitcoin, ethereum or stablecoins, namely tether and USD Coin. This accumulated balance must be converted to Indian Rupee every day at midnight.

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The exchange must maintain the transaction log for each TDS deduction on crypto-to-crypto exchanges. The compliance burden for exchanges, as well as for taxpayers, will increase.



speaking to commercial Standard, Meyyappan Nagappan, Leader, Digital Tax, Nishith Desai Associates says, good clarification, let the ecosystem comply with the law. It is not known whether the TDS provision applies to foreign exchange. TDS needs to be addressed in products such as P2P transfer through a platform. Enforcement against decentralized exchanges is still a big problem

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Increasing compliance requirements for exchanges should provide peace of mind for banks, which have been reluctant to work with crypto firms. In many cases, they have denied services to crypto companies, as RBI continues to vehemently oppose cryptocurrencies.

Amanjot Malhotra of Bitay says that it is surprising that banks still do not feel comfortable doing business with cryptocurrency companies even though a tax regime has been put in place and regulations developed for the asset class.

He says that one will find that compliance is very strong with crypto exchanges in India.

The latest TDS clarifications and crypto tax FAQs to be released soon are expected to bring a sense of stability to traders and domestic exchanges in a turbulent year.

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