Indian Government To Clarify the 1% TDS on Crypto Transactions Law

According to a recent report, the Indian government plans to provide procedural clarities on the tax rules they released just a few weeks ago. After one of the tax provisions, the tax-deductible at the source of 1% became a major issue for many cryptocurrency exchanges, traders, and legislature.

Plans to Clarify the 1% TDS Provision 

A recent report notes that the Indian government will clarify the 1% TDS law recently imposed on crypto. Just a few weeks ago, The Indian  Rajya Sabha(upper house) passed bills that include the taxing requirements for crypto traders. 

The law noted that traders will pay a 30% capital gain tax for their crypto holding. The bill also included another tax provision that requires a 1% tax deduction at source(TDS). The 30% capital gain tax already took effect starting April 1st. But the latter, the 1% TDS, should be taking effect from July 1st.

The government noted that this TDS tax would help trace all transactions to avoid tax evasion. Exchanges that deposit tax on behalf of sellers will be required to pay this TDS. Accordingly, the seller will set off the 1% TDS from their 30% tax liability.

The government seeks to explain the procedure, not the 1% tax deduction. The procedural clarity is basically how the exchanges will calculate the TDS and how they share the information with the government.

This bill was quite divisive, with some legislatures feeling it was okay, while others noted that it would hamper the crypto business. Crypto stakeholders noted that this 1% TDS would dry the liquidity flow in exchanges. Others have mentioned possible legal challenges against the unfavorable law. For that reason, there was a serious need for clarity, and the government is providing in 2 months. 

What Crypto Stakeholders Need Clarity On

While the government insists on providing procedural clarity, crypto stakeholders need more clarity on this 1%. The crypto stakeholders have two main pain points: trading and Swaps of virtual digital assets(VDAs).

When it comes to trading, Anirudh Rastogi, a crypto lawyer, said, “Remember the buyer and seller may never know each other or their nationality or have their PAN [an Indian taxpayer ID] or know the aggregate value of the consideration received from the transfer of VDAs.”

In Swapping, a trader changes crypto directly for another, i.e., a BTC to ETH direct change. It’s unclear who the buyer is, whether the TDA is deductible in VDA or fiat, and how exchange costs are determined. Another tax counsel also had similar concerns asking each trader must have a Tax deduction account for TDS and how it will work on leverage trading. There is a lot of clarity needed by crypto exchanges before the law takes effect in July.

India Too Strict On Crypto

Over the past years, it has been well established that India is quite strict on matters to do with crypto. There were recent claims that Indian crypto traders received letters from the government asking them to explain their historical trading activities. These traders complained that CEXes were sharing their private data with the government. But, as it stands, this new TDS rule will likely require CEXes to share data constantly.