India to Give Clarity on Tax Provision Within Two Months
The 1% tax deducted at source has been the biggest pain point in the new tax rules for India’s crypto industry. The government is committed to resolving this issue, which was highlighted in the recent T20 roundtable on blockchain, as well as a private meeting between officials and industry representatives.
According to sources familiar with the matter, Indian authorities are now working towards issuing a circular within two months that will “clarify” their stance on the tax provision.
The 1% tax deducted at source (TDS) liability – which will take effect on July 1 – is the most controversial provision of India’s new crypto tax law. The previous provision took effect on April 1, which dictated a 30% capital gains tax on all transactions.
Indian authorities have been facing mounting pressure from the crypto industry and experts in recent months. Many argue that the tax provision is too broad, and there are concerns about how it will be enforced. Some even believe that this could lead to the complete shutdown of India’s cryptocurrency industry.
The TDS mechanism is used to trace transactions and prevent tax evasion, according to the Indian government. Other countries have implemented similar systems, such as Spain where the government is developing a Blockchain-based data collection system.
Crypto businesses have repeatedly highlighted TDS as the biggest pain point in the new crypto tax legislation. Some have even stated that they were unable to file taxes because of the lack of clarity. However, recent reports suggest there may be some progress on this front as government officials haven’t ruled out clarifying the rules within two months.
According to a senior official who spoke with Bloomberg: “We want to make sure people pay their fair share of taxes and we will take action to make sure that happens.”
While the official didn’t commit to a specific timeline, they said the government is aware of the industry’s concerns and is working on resolving them.
The new tax laws, which came into effect on April 1, impose a TDS of 10% on crypto transfers exceeding Rs 50,000 ($683). Businesses are also required to withhold taxes on behalf of their employees.
Finance Minister Nirmala Sitharaman had previously stated that the purpose of the new rules is to “tax people who are not paying their fair share.” She added:
“There are lots of investors in crypto assets and this is one way for the government to be able to track the money that’s flowing and then obviously, tax them. There are lots of people who make money from crypto trading and we don’t think it should escape taxes as far as income tax is concerned.”
The development comes less than a month after Prime Minister Narendra Modi reshuffled his cabinet in an effort to boost economic growth ahead of national elections next year. The move led some local press outlets to speculate that Sitharaman would be assigned additional responsibilities related to India’s tech sector.
The crypto industry in India is seeking clarity on two major points from the Government’s provisions – trading and swaps of virtual digital assets (VDAs). VDA is the Indian government’s terminology for all cryptocurrencies and NFTs.
Anirudh Rastogi, founder and managing partner of Ikigai Law, a Delhi-based law firm specializing in blockchain, ICO and crypto regulation, told news outlet Inc42 that the government is currently working on two key pieces of legislation: a draft bill to ban cryptocurrencies as an asset class but allow the transfer of existing cryptographic units, and a framework for taxation.
Sources say that revenue officials will soon be meeting with representatives from trading platforms and exchanges in order to discuss their concerns about tax policy around cryptocurrency. The representatives will provide feedback to the Department of Revenue within the next month or so.
India has been considering regulating cryptocurrencies for over a year now , but progress has been slow. Lawmakers are wary of legalizing digital assets because they’re afraid it could open up loopholes for potential money laundering activities .