Crypto firms seek amendment in TDS to encourage industry

Companies like Coinswitch and Zebpay are expecting that TDS (Tax Deducted at Source) on crypto will be revised in the upcoming budget. NFT firms like Rario said that making a distinction between cryptocurrency and collectibles could help the industry.

“India should encourage users to stay in the national jurisdiction by reducing the burden of taxes. If the goal of TDS is to establish a trail of crypto transactions, it can be achieved with a lower TDS rate of 0.1%,” said Ashish Singhal, CEO and co-founder of CoinSwitch, a crypto exchange.

Last April, the government imposed a 30% tax on income from crypto transactions. This was followed by an additional 1% TDS levied on the sale or transfer of digital assets in July.

The tax was a major blow to an industry that was already reeling from an overall downturn and waning investor interest. This forced many people to cut jobs and stop new appointments. Trading volumes on Indian crypto exchanges CoinDCX, WazirX and ZebPay fell 97% last year, according to December data from crypto research firm CREBACO.

Coinswitch’s Singhal said 30% tax and 1% TDS are attributable, without provision to offset losses. “This is making the markets illiquid, and investor sentiment is running low. Such situations push consumer money into the gray market, exposing them to regulatory issues,” he said.

Prateek Gauri, co-founder and CEO of blockchain startup 5ire, agreed that the drastic drop in trading volume is “worrying.” ,

Sure enough, according to a report published last week by crypto researcher CoinGecko, funds raised by crypto companies around the world have dropped by 42% in the past year. Firms to raise $21.26 billion in 2022, down from $37.06 billion in 2021, showing a drop in investor interest worldwide due to scandals surrounding crypto exchange FTX and crypto token Luna.

“It is important to ensure that no taxation regime hinders the growth of India’s talent in Web3 and the supercharged innovative environment it is experiencing recently,” Gauri said.

The industry is also demanding the same protections for crypto that are available for other assets such as stocks and bonds. Rahul Pgidipati, CEO of ZebPay, a crypto exchange, said clarity on taxation by reducing TDS and capital gains taxes and leveling them with other asset classes like stocks and bonds will help the industry. He said that the government should also create a progressive regulatory framework.

Currently, India does not have any specific regulation or framework to control crypto. The Reserve Bank of India (RBI) has repeatedly reiterated that crypto poses an inherent threat to the country’s macroeconomic and financial stability. RBI is in the process of launching a Central Bank Digital Currency (CBDC) on a pilot basis.

“All of this will address ongoing concerns and uncertainty about the industry by creating transparency and helping industry players protect users from any kind of Black Swan events like the FTX collapse,” Pagidipati said.

NFT platforms also want the government to tax crypto-based NFTs and non-crypto-based tokens separately. “We sincerely look forward to further amendments in the definition of VDA in the upcoming Finance Bill to separate crypto-based tokens from non-crypto-based tokens and separate tax regime for each. Our digital player cards are on a custom-made Rerio blockchain, where we do not rely on any cryptocurrency and can only be purchased with fiat currency.”

The 2022 Finance Bill defines Virtual Digital Assets (VDAs) as any token generated by cryptographic means. It also recognized NFTs as VDAs.