1% TDS - the killjoy of the big Indian Crypto Party?
When the Government of India introduced new crypto tax laws on February 1st, 2022, the biggest cause of concern in it was the 1% TDS (Tax Deducted at Source) which has been put into effect now from July 1, 2022. It'll be applicable anytime an Indian buys or sells crypto.
What's the tax?
It is a liability imposed on the crypto exchanges. It'll be calculated at 1% of a transaction's value. The seller would be able to offset the 1% TDS from his or her total tax liability of 30%. The government must be notified of a transaction within 30 days from the end of the month in which the transaction happened & any sum deducted must be paid to the government within this time frame. Transactions of up to INR 50,000 in a year are exempted from this tax.
The government issued another notice on June 30 that said that 30% tax & 1% TDS would not be applicable on certain NFTs & digital assets. These include digital gift cards, vouchers for the purchase of any goods or services or those to avail discounts on goods & services, mileage points, reward points, loyalty cards, and tangible assets like land records.
Why the killjoy?
Ever since the tax has been announced, the crypto community of India has argued – and continues to believe – that the 1% TDS is too high, and could kill trading volumes, increase an already high level of brain drain and make tax collection and understanding extremely cumbersome for both industry and retail traders, effectively scuttling the growth of an industry that was just taking off. Within days of the 30% tax taking effect in April, trading volumes collapsed, in some cases more than 70%.
The ambiguous future
The Governor of India's central bank, the Reserve Bank of India (RBI), has said that cryptocurrencies are a clear danger as it derives value based on a make-believe system. Such statements are sure to make a huge negative impact on the market & its future in the country.