Crypto tax: how the 1% TDS will be reduced when trading Bitcoin, Ether and other tokens

1% TDS will be deducted from any Indian resident who transfers their Virtual Digital Assets (VDA). However, the CBDT has exempted a certain amount of the TDS. For example, TDS will not be deducted if the consideration is $50,000 in a tax year for a specified person who is: a Hindu Undivided Individual or Family (HUF) who has no other income under “profits and profits from business or profession”; and 2) an individual or HUF who has income under “profits and profits from business or professions” whose profits from business conducted by him do not exceed $1 crore or in case of profession exercised by him does not exceed $50 lakhs

Meanwhile, the TDS exemption is up to $10,000 in a tax year applicable to anyone other than a ‘specified person’.

On the TDS rule, Rajagopal Menon, Vice President of WazirX, said: “We are complying with the government directive on 1% TDS and the updates to our exchange and P2P platforms went live yesterday. The new update will ensure that tax deductions are transparent to keep users informed about taxes throughout the cryptocurrency buying experience.” He added: “There are processes in place to collect TDS for relevant transactions.”

WazirX VP explained that first of all, the collected TDS must be paid to the Income Tax Department in INR. For this, any TDS collected in the form of Crypto must be converted to INR. To facilitate conversion and reduce price slippage, in Crypto to Crypto transactions, the TDS for both sides would be deducted from the listed crypto asset (or principal).

Cryptocurrency trading platform WazirX currently has 4 listed assets: INR, USDT, BTC and WRX.

Menon said, for example, in the following markets: MATIC-BTC, ETH-BTC and ADA-BTC, BTC is the listed crypto asset and therefore the TDS of the buyer and seller trading in these markets would be deducted in BTC. .

Here is a brief example of how TDS will be deducted according to expert WazirX.

If the cryptocurrency is transferred on INR markets: 1 BTC is traded for 100 INR. The BTC seller receives 99 INR (after deduction of 1% TDS). BTC buyer receives 1 BTC (no TDS deduction).

If the asset is traded on Crypto-Crypto markets: 1 BTC sold for 10 ETH. The BTC seller receives 10 ETH by paying 1.01 BTC (after the addition of 1% TDS). The BTC buyer receives 0.99 BTC (after deduction of 1% TDS).

If the asset is distributed in P2P operations. 1% TDS would be deducted before placing a USDT sell order. Therefore, the P2P USDT buyer does not have to pay TDS.

Giving an example, Menon explained that the seller places an order to sell 100 USDT. With a 1% TDS deduction, a sell order would be placed for 99 USDT. The buyer would pay 99 USDT, and the buyer would transfer the corresponding INR to the seller’s bank account.

However, if the full 99 USDT is not sold successfully, then 1% TDS will be deducted only in proportion to the quantity sold, and the remaining 1 USDT locked for TDS will be returned to the seller upon order cancellation.

“At present, it is still premature to predict the ramifications of TDS. We will be in a better position to understand this in the second week of July. Our focus is more on adhering to the new tax rules and meeting the required standards that are there have been a drop in trading across the industry as investors switch to hold and there may be another drop as traders see their capital locked up while trading on KYC compliant Indian exchanges,” Menon added.

Amajot Malhotra, Country Head of Bitay, believes that the TDS rule will discourage innovators who promote India as an innovative hub for the industry. He believes that the Indian government will also miss out on huge tax revenue due to a decline in cryptocurrency transaction volume on platforms.

“The recent 1% TDS provision on crypto transactions is a modern example of a tax provision that would be highly detrimental to the cryptocurrency industry. The tax provision will not only discourage innovators who have been doing a great job of promoting of India as an Innovative Hub for the industry, but the government will also be at a loss as it will miss out on massive tax revenue due to overall declining transaction volumes on crypto platforms,” ​​Malhotra said.

When the 30% tax rule came into effect, there was a massive decline in cryptocurrency trading on Indian platforms. Furthermore, the tax rules dampened confidence in the market to the point that investors were losing interest in cryptocurrencies. However, the panicked sell-off that has led to a bloodbath in the global crypto market since May due to ongoing macroeconomic uncertainties added to the woes.

According to CoinMarketCap, on Sunday, the global crypto market capitalization is currently down 0.12% to $864.13 billion over the past day. In terms of volume, crypto transactions fell 24.40% to $55.51 billion over the last day. Bitcoin struggled below $19,200 and its dominance was around $42.3. Ethereum floated around $1,045. BNB plunged 1.5%, while XRP fell marginally. USD Coin, Binance USD, and Tether traded virtually unchanged. Cardano, Solana, and Dogecoin all outperformed by gaining 1-4%.

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