2 Implications of India’s Crypto Tax Bill
- In 2018, the Reserve Bank of India officially banned cryptocurrency transactions, but the Supreme Court overturned the ban last year.
The Indian government announced plans to attach a 1% TDS ( Tax Deducted at Source) on crypto transactions from July 1st. The tax, which is also known as the Crypto Tax Bill, is applicable to P2P orders and exchange trading. Many crypto experts believe this move by the authorities holds different implications for traders and the entire cryptocurrency industry.
Digital assets like NFTs (non-fungible tokens) have gained popularity across the globe in recent years. In addition, trading in these assets has significantly increased since the introduction of cryptocurrency exchanges. India, however, lacked a clear policy on how to either tax or regulate these asset groups until it introduced its tax bill. Earlier this year, the Indian government decided to impose a 30% yearly tax on all crypto income.
The introduction of a new section 115BBH to levy income tax on cryptocurrency and other virtual assets was proposed in the Union Budget 2022–2023. A memorandum from the budget read
The proposed section 115BBH seeks to provide that where the total income of an assessee includes any income from transfer of any virtual digital asset, the income tax payable shall be the aggregate of the amount of income-tax calculated on the income of transfer of any virtual digital asset at the rate of 30%. The amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of the income from transfer of virtual digital asset.
The tax was was a huge disappointment for crypto traders as it means they have to remit a huge part of their crypto earnings despite the harsh reality of the bear market. Trades made on Indian exchanges including WazirX, CoinDCX, and CoinSwitch Kuber are currently subject to tax. Although it won’t happen immediately, TDS will eventually be implemented on Binance, Kucoin, and MEXC.
People earning less than 10L per year is affected by 30% fixed income tax on crypto. 1% TDS is affecting the market makers and liquidity providers. Both are needed for better crypto ecosystem in India.#reducecryptotax #faircryptotax Day-68 #IndiaWantsCrypto @Unocoin
— Dr. Sathvik Vishwanath (Unocoin) (@sathvikv) April 10, 2022
Here are some possible implications of the tax bill.
Legitimacy for the Crypto Industry
In a sense, the move by the government to tax crypto earnings reduced the confusion around the fate of cryptocurrencies in India and hinted that they might not be forbidden as previously anticipated. Prior to this time, many Indian crypto users believe the country would move against the industry but the decision to tax crypto earnings offers more recognition and legitimacy to crypto-based transactions.
Trading Volume Might Decline
Days after the announcement of the tax bill, trading volume in the Asian country nosedived. There are concerns that this tax bill might affect the growth of the crypto space in India especially as most traders complain about the overall decline of the market.
A member of the Indian parliament noted that imposing a 1% tax TDS on each cryptocurrency transaction will destroy the emerging asset class. According to parliament member, Ritesh Pandey,
When you impose a 1% TDS at three stages, it will give birth to red tapism. Doing so will also finish this asset class, which is very young.
Furthermore, a large portion of the Indian crypto community concurs with Parliament Member Pandey regarding the drawbacks of putting a % TDS on cryptocurrency.
Aditya Singh, a co-founder of the Crypto India Youtube channel believes the incoming tax will force traders to stop day trading or use international exchanges. According to him, the situation will lead to liquidity difficulties on Indian exchanges in addition to lower trading fee collection.
Lawrence has covered some exciting stories in his career as a journalist, he finds blockchain-related stories very intriguing. He believes Web3 will change the world and wants everyone to be a part of it.
