India’s Crypto Tax Comes Into Effect, With A 1% Tds Expected To Kick Off In July

India’s Crypto Tax

Welcome back to the Tribe! In this post we dive into India’s Crypto Tax.

Nothing should be considered investment or financial advice. Enjoy the ride!

India’s Crypto Tax

India’s 30% tax on profits from cryptocurrencies came into effect yesterday being the 31st of March. In addition to this, the industry also faces the prospect of another 1% Tax Deducted at Source (TDS) expected to take effect by July 1.

Upcoming Taxes

India’s tax on cryptocurrencies came into effect yesterday, placing the burden on businesses and individual investors to cough up a 30% haircut on profits they receive.

There are fears that the tax regime will lead to the flight of domestic crypto entrepreneurs and startups to progressive tax havens including Portugal, Germany, or Singapore.

According to Sumit Gupta, CEO of India’s first crypto unicorn CoinDCX

“The onerous tax provisions are a challenge for the crypto industry, A flat 30% tax rate will certainly stifle growth and we have already seen many crypto companies leaving India.”

Gupta also emphasized that the tax regime will impact trading volumes negatively, causing the country to miss out on “huge opportunities.” According to him, Crypto is not a form of speculation but has grown to become a “globally recognized” and “respected” asset class.

He also added that “The tax rate should at least mirror that of other asset classes so as to minimize the financial impact on investors who do not fall under the highest tax bracket,”

The 1% TDS Tax, “Red Tapism” And Other Comments

In addition to the capital gains tax, India’s citizens will also be forced to pay a 1% tax deducted at source (TDS) — set to take effect on July 1. A TDS in the case of crypto will require investors to pay for each transaction, including when crypto is bought, transferred to a digital wallet, or used to purchase non-fungible tokens.

According to the Finance Minister, Nirmala Sitharaman;

“TDS (tax deducted at source) is more for tracking. It is not an additional tax and not a new tax. It is a tax that will help people track it, but at the same time the taxpayer can always reconcile it with the total tax to be paid to the government,”

But an MP Ritesh Pandey expressed concerns in the Lok Sabha about the tax. The MP believes that the 1 percent Tax Deducted at Source (TDS) will promote “red tapism” while killing off this up-and-coming digital asset class. The “red tapism” idiom refers to those formal rules that are claimed to be excessive and rigid.

According to him;

“When you impose a 1 per cent TDS at three stages, it will give birth to red tapism. Doing so will also finish this asset class, which is very young,”

The reality of the TDS is scary because it will require a person to pay the TDS at three stages — when a cryptocurrency is purchased, when it is transferred to a crypto wallet, and when the cryptocurrency is used to purchase another digital asset, like a non-fungible token (NFTs).

Commenting on this, Om Malviya, President, Tezos India said:

“Adding Cryptocurrency under the ambit of GST on top of crypto tax and TDS is bound to put more pressure on the crypto community. With the scope of pushing a decentralized financial system for the better, this might defy the actual purpose of the same. The GST council must take a serious note on this,”

The effect of this tax regime may not be known at the moment but from the look of things, it might make the country an unfavorable crypto destination.

Other News – Kraken Joins Lightning Network

Major crypto bank and digital currency exchange Kraken added support for the popular decentralized network Lightning. The Bitcoin layer protocol provides smart contract functionality and off-chain transactions.

Platforms like social media giant Twitter have also integrated the Lightning network for BTC payments.