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

.

.

.

Now, the oldest and the largest cryptocurrency Bitcoin is trading at its lowest level in 18 months after falling 70% from its record highs in November 2021. The overall crypto market capitalisation is roughly $914 billion, down from a peak of $2.9 trillion.

.

.

It addresses some of the concerns raised by the industry and helps exchanges and traders navigate the burdensome TDS provisions, removing the cloud of uncertainty. The 1% TDS is applicable on payments toward cryptocurrencies beyond Rs 10,000 in a financial year or Rs 50,000 a year for specified persons, which includes individuals and HUFs who are required to get their accounts audited.

Amanjot Malhotra, Country Head – India, Bitay says the biggest point of concern has been addressed regarding crypto-to-crypto trades. 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.

.

In a peer-to-peer transaction, the buyer is required to deduct the tax before paying the consideration. In case the transaction is taking place through an exchange, the exchange can deduct the TDS.

.

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

.

The trail of transactions for every TDS deduction on crypto-to-crypto trades must be maintained by the exchange. The compliance burden for exchanges as well as taxpayers is bound to go up.

Speaking to Business Standard, Meyyappan Nagappan, Leader, Digital Tax, Nishith Desai Associates says, good clarification, lets ecosystem be legally compliant. Whether TDS provision applies to foreign exchange is not known. TDS on products like P2P transfer over a platform needs addressing. Enforcement against decentralised exchanges is still a big issue

.

Compliance requirements going up for exchanges should provide comfort to banks, which have been reluctant to work with crypto companies. They have in many instances denied services to crypto businesses as RBI remains vehemently opposed to cryptocurrencies.

Bitay’s Amanjot Malhotra says it’s surprisng that banks are still not comfortable doing buinsess with crypto companies despite a taxation regime setting in and regulations evolving for the asset class.

He says one will find compliance to be very strong with crypto exchanges in India.

It is hoped that the latest clarifications on TDS and the soon-to-be-issued FAQs on crypto taxation will bring a sense of stability to traders and domestic exchanges in a turbulent year.

.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor