India should consider reducing TDS on cryptocurrency trading to 1 per cent as the higher rate is causing flight of capital and users to foreign jurisdictions and gray markets, a report said on Tuesday.
Chase India and Indus Law’s ‘Impact Assessment of 1% TDS on VDA’ report says crypto Platforms/exchanges should also conduct due diligence on the customer which may help in uncovering any potential future risks.
“The current 1 per cent TDS on crypto trading, coupled with the absence of comprehensive regulations, is causing flight of capital and users to foreign jurisdictions and gray markets,” it said.
The government has imposed 30 per cent income tax plus surcharge and cess on transfer of Virtual Digital Assets (VDA), which includes cryptocurrencies, with effect from April 1 last year. Bitcoin, Ethereum, lanyard And dog coin,
Also, to keep a tab on money transactions, 1 per cent TDS has been brought in on payments above Rs. 10,000 towards virtual digital currencies.
“The purpose of TDS is to establish a trail of crypto transactions, and this can be achieved with a lower TDS rate. A lower TDS rate would also support tracking and tracing of transactions, thus aiding tax collection if Indian investors continue to trade from Indian KYC-enabled platforms,” said the report, which was presented on February 1, days before the Union Budget for 2023-24.
It also suggested that for the purpose of security and oversight, the government should ask all crypto exchanges/platforms to conduct detailed e-KYC authentication on all investors/traders in line with the Aadhaar regulations.
In the joint report, Chase India and Indus Law also said that many exchanges are not complying with the said TDS rules despite being mandated to do business under the legal framework and under other Indian laws and regulations.
Many exchanges have been found to discount it in their trading practice with unwarranted discretion. It said this loophole has given rise to a systemic ‘grey market’ scenario by fencing off taxation for such exchanges-cum-companies.
In its recommendation, the study said: “Every exchange/platform should provide and be mandated to submit transaction records to the tax regulatory authority. This would help the tax authorities (CBDT) to create a directory of ‘legitimate’ exchanges.” which comply with TDS norms.” The government, in a reply to Parliament last month, had said that it has collected over Rs 60 crore as TDS for transactions in VDAs.
“In the absence of some of the exchanges contributing to the tax clause, the government would miss out on the potential revenue stream that could be generated through these trading channels,” the report said.
Chase India spokesperson said: “A Self-Regulatory Organization (SRO) can be considered to fill the regulatory gap. This will encourage compliance, protect customer interests, and promote ethical and professional standards among exchanges.” Will give.” An Indus Law spokesperson said, “Non-tax compliant exchanges are being used to evade tax due to stringent TDS provisions. Such off-the-radar transactions can themselves be a breeding ground for financial crimes and other criminal activities.” “