After govt clarity on TDS, will it be smooth sailing for crypto in India?



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The problems for India’s crypto industry seem to be endless. On 1 February, in the Union budget, the government decided to impose a 30% tax on cryptocurrency revenues for the new financial year and a 1% TDS on all cryptographic transactions from 1 July.

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The move has somehow stifled uncertainty about the fate of cryptocurrencies in India and suggested that it may not be banned as previously feared. But by then, cryptocurrencies had already entered the territory of the bear market. The crash worsened with the recent collapse of the TerraUSD algorithmic stablecoin.

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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. The global capitalization of the cryptocurrency market is approximately $ 914 billion, below a peak of $ 2.9 trillion.

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Globally, cryptographic exchanges are reducing their costs and laying off hundreds of employees while trading volumes have a big impact. In the midst of these difficult times, Indian exchanges have reasons to cheer. While the government does not take into account the demand to lower the TDS rate to 0.01% or 0.05%, the Central Board of Direct Taxes came out this Wednesday with long-awaited clarifications on the applicability of the TDS provisions.

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It addresses some of the concerns raised by the industry and helps stock exchanges and traders navigate the onerous provisions of TDS, removing the cloud of uncertainty. The 1% TDS applies to payments to cryptocurrencies beyond Rs 10,000 in a financial year or Rs 50,000 per annum for specific persons, which includes individuals and HUFs who must audit their accounts.



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

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In a peer-to-peer transaction, the buyer is required to deduct the tax before paying the consideration. In the event that the transaction is carried out through an exchange, the exchange may deduct the TDS.

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Scholarships are required to file a quarterly return of all of these transactions and include them in their income tax returns. CBDT has also removed doubts about how cryptographic exchanges for TDS are handled. In these cases, the exchange will have to deduct 1% of TDS on both assets of the pair. The tax deducted in kind must be immediately converted into bitcoins, ethereum or stablecoins, i.e. tether and USD Coin. This accumulated balance should become the Indian rupee every day at midnight.

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The exchange must keep track of the transactions of each TDS deduction in the crypto-to-crypto negotiations. The compliance burden for scholarships and taxpayers is bound to increase.



Talking to business standard, Meyyappan Nagappan, leader, Digital Tax, Nishith Desai Associates says, a good clarification, allows the ecosystem to comply legally. It is not known whether the TDS provision applies to currencies. TDS on products such as P2P transfer across a platform needs to be addressed. The implementation of decentralized exchanges remains a major problem

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Rising compliance requirements for exchanges should provide convenience to banks, which have been reluctant to work with cryptographic companies. In many cases, they have denied services to cryptocurrency companies, as RBI continues to vehemently oppose cryptocurrencies.

Bitay’s Amanjot Malhotra says it’s surprising that banks aren’t yet comfortable doing business with crypto companies despite an established tax regime and evolving regulations for the asset class.

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

The latest clarifications on TDS and frequently asked questions about cryptographic taxation are expected to bring a sense of stability to traders and national stock exchanges in a turbulent year.

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