The Central Board of Direct Taxes recently issued guidelines with regards to one percent TDS on virtual digital currencies (VDAs) that is set to come in force from next month. From July 1 onwards, TDS at the rate of one percent will have to be deducted by the person making the payment for buying cryptocurrencies.
The guidelines state that deduction will have to be made when payment is made of more than ₹50,000 is made in a financial year by a specified person. For others, the consideration amount should exceed ₹10,000 for deducting TDS under section 194S.
When a transaction happens through an exchange, tax may be deducted by the exchange which is making payment to the seller.
A few exchanges such as Giottus have announced that they will cut TDS based only on the exemption limit set by the government i.e., ₹50,000 or ₹10,000 as the case may be. On the other hand, other exchanges such as CoinDCX and Zebpay will cut TDS on all transactions irrespective of the transaction amount.
“We, at CoinDCX will cut TDS on all transactions to be on the safe side. The threshold of ₹10,000 for individuals and ₹50,000 for institutions cannot be implemented,” Mridul Gupta, the COO of CoinDCX.
Dismal mood?
Several industry experts and crypto exchanges are, naturally, not enthused with the introduction of 1 percent additional tax on payments made for cryptocurrencies.
Sidharth Sogani, Founder and CEO of CREBACO, a crypto research firm, says that the sentiment among crypto investors is already very low because of steep fall in prices, and now the 1% TDS will exacerbate the already bad situation.
“Currently, the sentiment of crypto investors is very bad. Overall global markets have fallen and even bitcoin has corrected by over 55 percent from its all-time high. New users and new money are definitely not coming at the global level. In India, overall 95 percent of volumes have gone down. Exchanges have liquidity issues. Definitely, they are laying off people. Keeping all these things in mind, the near future doesn't seem to be very bright,” he said.
About the impact of 1% TDS, he said, “The impact of TDS is going to kill the market further because liquidity providers will back out. Also, TDS compliance is going to very difficult for exchanges and users to adhere to. Overall, the market is not going in the right direction. We need govt to make laws and orders in such a manner that crypto industry flourishes and doesn't get impacted negatively by the regulations.”
Sathvik Vishwanathan, co-founder and CEO of Unocoin, said via a tweet on June 23, “Govt will collect more TDS at 0.1% from happy crypto community than collecting 1% from sad community who are bothered about their capital getting locked away in name or TDS.”
He also added, albeit hypothetically, that the same individual would have given more income tax if this 1% was with him.
However, Gaurav Mehta, Founder at Catax, an online crypto tax software, believes that 1% TDS will not have adverse impact in the long term.
“Cryptocurrency investors will not be deterred because investors are concerned with an asset's future appreciation and invest for the long term. The key tenet of cryptocurrencies is HODL, which means to continue holding it for an extended duration. One per cent tax is a minor expense for crypto investments in assets with significant potential for volatility and return,” said Mr Mehta.
While pointing at the ray of hope in this new legislation, he said, “Crypto speculators, day traders, and pump-and-dump scheme players will be deterred from investing owing to TDS restrictions that would freeze their capital with additional trades.”