Representatives from India’s cryptocurrency industry met with senior decision-makers at the Finance Ministry in an attempt to persuade officials for reconsidering certain aspects of the country’s new crypto taxation policy.
The meeting was the first communication between the crypto industry and decision-makers since Finance Minister Nirmala Sitharaman declared crypto taxation policies in her national budget speech on February 1.
Possibility of small traders being discouraged by TDS
The crypto exchanges‘ senior management requested the one percent tax deducted at source (TDS) on all crypto transactions to be reviewed, claiming it was impractical and difficult for complying with. According to CoinDesk, Finance Ministry officials are evaluating the concerns and their legitimacy.
Exchanges are also developing a formal and detailed proposition with the assistance of an industry body, BACC (Blockchain and Crypto Assets Council), and the four auditing firms, guided by EY. BACC, a member of the Internet and Mobile Association of India, has been driving government consultations representing the crypto exchanges and the industry.
According to people familiar with the project, the framework is being developed to persuade the government to remove the 1% TDS provision from the finance bill. “The Finance Ministry is ready to discuss and has requested a formal proposal,” a source familiar with the situation said.
On February 5, the crypto industry gathered for a meeting to discuss the TDS issue. They concluded that TDS could discourage small traders, potentially pushing them towards unofficial peer-to-peer (P2P) trading and distributed exchanges.
However, industry experts and tax officials have a difference of opinion on whether the government would be reconsidering removing the TDS or whether doing so is the best course of action.
Views and expert opinions
The government has proposed a removal of difficulties clause, which permits the department to modify the law, said Anoush Bhasin, founder of cryptocurrency tax advisory Quagmire Consulting in New Delhi.
As a result, we must wait for parliamentary proceedings and analysis to see if the government can reconsider. Otherwise, the trading industry will suffer greatly. With marketplaces/exchanges, an alternative mechanism for gathering transactional data must be examined. The 1% TDS provision creates practical difficulties in execution as well as a heavy compliance burden. It could have a significant impact on Indian investment and trading activity,” Bhasin said.
Crypto tax expert Gaurav Mehta, and the founder of Catax, an all-inclusive store for crypto taxes, blockchain auditing, and forensics, believes the government will not reconsider, stating that in the best interests of price discovery, risk management, and adherence as foremost responsibilities of exchanges, they should not have an issue with the 1% TDS.”
The major reasons leading to the unnecessary innovations by the exchange include factors such as ambiguity regarding the cryptocurrency regulations, lack of in-depth knowledge regarding the capital market, and an aspiration to maximize profits. This reached a point where complexity became excessive for handling – positioning against the market, custodian, settlement, sermonizing, airdrops, and initial coin offerings (ICO), and galvanization of trades with rewards. TDS is difficult for them. TDS should be a piece of cake for exchanges involved in standard exchange operations, according to Mehta.
The founder and CEO of cryptocurrency research organization Crebaco, Sidharth Sogani, believes the government can devise an alternative method, saying, the prospects of the crypto space are being ignored. The industry will grow faster if we simplify compliance. Instead of using TDS for transaction tracking, third-party auditors can be hired to provide reports.
Capital gains tax on the lineup
Aside from the 1% TDS, exchanges also have a concern regarding the 30% tax on all crypto investment profits. However, lowering the tax rate is a secondary preference.
Sogani stated that the crypto industry is hoping that the 30 percent flat tax rate on profits will be decreased, but this is unlikely to be pursued at this time.
The budget included new crypto ecosystem rules, such as a 30% tax on any profits when virtual digital assets are transferred and a 1% TDS on all crypto transactions. When the finance bill is passed by parliament, which is expected in a few weeks, the new rules will become law.
