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

Crypto profits — over the past few years — have encouraged Indians to start investing in digital assets. However, in the latest Union Budget, the Indian government has made crypto profits subject to tax deductions. A 30 percent tax has been taken into consideration to charge on all income from digital assets in the country. In addition to the crypto tax, the government has also planned a 1 percent tax deduction at source (TDS) that is coming into force from July 1. The plan to impose TDS is particularly facing criticism from Indian crypto exchanges and investors.

To discuss the impact of crypto tax alongside the planned TDS, Orbital host Akhil Arora speaks with Rajagopal Menon, Vice President of crypto exchange WazirX, and Gaurav Mehta, founder of crypto tax consultancy Catax.

Similar to the existing capital gains tax, the 30 percent crypto tax is meant to be charged on all gains from crypto assets. It has been in effect since April 1.

However, unlike the regular crypto tax, the one percent TDS is planned to be charged on all crypto transactions — not just the ones that generate profits. This is coming into place starting July, as I said earlier.

The government believes its TDS mechanism for crypto transactions will help track transactions and prevent tax evasion in the country. It also makes crypto exchanges liable for depositing the tax on behalf of sellers on their platforms.

Crypto exchanges are demanding the government to provide clarity on the implementation of TDS and reduce its rate.

"What this one percent TDS does is that it wipes out the trading market completely, because what happens is that after about 250–300 trades, it starts eating into your capital," Menon says.

The challenges that crypto exchanges and investors see due to the TDS — and other recent crypto regulations — have started resulting in an adverse impact on crypto trading in the country. Some Indian stakeholders have also started looking at overseas markets to retain 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 crypto in India," the WazirX executive underlines.

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

However, Mehta argues since individuals were not paying taxes for their transactions for the last few years, the government had to bring the TDS into place.

"India is not at all a tax paying country," Mehta claims. "It's an individual habit to evade taxes wherein there would be a fiduciary duty or at least the responsibility of the exchanges to drive the revenues for the government via taxes."

You can listen to the complete discussion that lasts for 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, not a legal tender and subject to market risks. The information provided in the article is not intended to be and does not constitute financial advice, trading advice or any other advice or recommendation of any sort offered or endorsed by NDTV. NDTV shall not be responsible for any loss arising from any investment based on any perceived recommendation, forecast or any other information contained in the article.