Crypto Tax: How 1% TDS Will Be Deducted When Trading in Bitcoin, Ether, Other Tokens

1% TDS Will be deducted from any Indian resident who is transferring his Virtual Digital Assets (VDA). However, CBDT has exempted a certain amount from TDS. For example, TDS will not be deducted if the consideration is 50,000 in a financial year to a specified person – an individual or Hindu Undivided Family (HUF) who does not have any other income under the head “Profits and gains of business or profession”; and 2) an individual or HUF whose income does not exceed “Profits and gains of business or profession” whose profits from the business carried on by him do not exceed 1 crore or in the case of profession exercised by him does not exceed 50 lakhs.

Meanwhile, TDS exemption is up to 10,000 in a financial year applies to a person other than the ‘specified person’.

On TDS rule, Rajagopal Menon, Vice President, WazirX, said, “We are following the government directive on 1% TDS and the update on our exchange and P2P platform went live yesterday. The new update will ensure that tax deducted. Is transparent. Keep users informed about taxation throughout crypto Buying experience.” He added, “Procedures are prescribed for collecting TDS for relevant transactions.”

VazirX VP explained that first, the TDS collected needs to be paid to the Income Tax Department in INR. For this, any TDS collected in the form of crypto has to be converted into INR. In a crypto to crypto transaction, TDS will be deducted on both the parties to quote (or primary) the crypto asset, for ease of conversion and to minimize the loss in value.

Cryptocurrency trading platform, WazirX currently has 4 quote assets – INR, USDT, BTC and WRX.

Menon said, for example, in the following markets: MATIC-BTC, ETH-BTC, and ADA-BTC, BTC is a crypto asset, and therefore TDS for both buyer and seller trade in these markets will be deducted in BTC. ,

Here is a brief example of how TDS will be deducted as per WazirX expert.

If the cryptocurrency is transferred to INR markets: 1 BTC trades for 100 INR. BTC seller receives 99 INR (after 1% TDS deduction). BTC buyer receives 1 BTC (no TDS is deducted).

If the asset is traded on the crypto-crypto markets: 1 BTC sold for 10 ETH. BTC seller receives 10 ETH by paying 1.01 BTC (after adding 1% TDS). BTC buyer receives 0.99 BTC (after deducting 1% TDS).

If the asset is settled in P2P trades. 1% TDS will be deducted before placing the USDT sell order. Therefore, the P2P USDT buyer will not have to pay any TDS.

Giving an example, Menon explained that the seller places a sell order of 100 USDT. After deducting 1% TDS, a sell order will be placed for 99 USDT. The buyer will pay 99 USDT, and the respective INR will be transferred by the buyer to the seller’s bank account.

However, if the entire 99 USDT is not sold successfully, 1% TDS will only be deducted in proportion to the amount sold, and the remaining 1 USDT closed for TDS will be returned to the seller if the order is cancelled.

“Currently, it is still premature to predict the effects of TDS. We will be in a better position to understand it by the second week of July. Our focus is more on complying with the new tax rules and meeting the required standards. There has been a decline in trading across the industry as investors have shifted to holds and there could be another drop as traders forfeit their capital while trading on KYC-compliant Indian exchanges,” Menon he said.

Bite’s country head Amjot Malhotra believes that the TDS rule will discourage innovators who are promoting India as an innovative hub for the industry. He believes that, due to the reduction in cryptocurrency transaction volume on the platform, the Indian government will also lose the possibility of earning huge tax revenue.

“The recent provision of 1% TDS on crypto transactions is a modern example of a tax provision that would be highly detrimental to the crypto industry. The tax provision will not only discourage innovators who are doing a great job in promoting India as a are innovation hubs for the industry, but the government will also suffer as they will lose the potential to generate massive tax revenue due to the reduction in transaction volume on crypto platforms,” Malhotra said.

When the 30% tax rule came into force, there was a huge drop in cryptocurrency trading on Indian platforms. Furthermore, tax regulations discouraged confidence in the market to the extent that investors were actually losing interest in cryptocurrencies. However, panic selling due to the bloodbath in the global crypto market since May due to current macroeconomic uncertainties has added to the crisis.

According to CoinMarketCap, as of Sunday, currently, the global crypto market cap has fallen 0.12% from the previous day to $864.13 billion. In terms of volume, crypto transactions fell 24.40% over the previous day to $55.51 billion. Bitcoin was struggling below $19,200 and dominated around $42.3. Ethereum was floating around $1,045. BNB dives 1.5%, while XRP is down marginally. USD Coin, Binance USD and Tether traded broadly flat. Cardano, Solana and Dogecoin outperformed with gains of 1-4%.

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