According to the report, India has kept its rigorous crypto tax regulations from 2022 to 2023, while adding a potential punishment or jail sentence for non-compliance to the provision concerning tax deducted at source (TDS).
Finance Minister Nirmala Sitharaman chose not to reference cryptocurrencies, virtual or digital assets, blockchain, or central bank digital currencies when she unveiled the country’s budget on Wednesday. This decision is in line with the most recent tax laws.
However, a change to TDS rules affecting virtual digital assets was hidden in the delicate language (VDAs).
The biggest democracy in the world imposed high taxes on cryptocurrency transactions last year: a 30% profit tax and a 1% TDS on all transactions.
The 1% TDS is still in place, but up until this point, there was no legal provision that enforced a fine for noncompliance if a citizen attempted to avoid paying the tax or made an incomplete payment. A retailer could contend in court that no punishment is required, only having to pay tax. Now, a violation could result in a fine equal to the tax debt and/or a prison sentence of 3 to 84 months.
Anoush Bhasin, the founder of Quagmire Consulting and a cryptocurrency tax advisor, claims that the amendment asks for a fine and possible jail time of at least three months and as much as seven years.
This is specific to crypto-to-crypto transactions, according to Sandeep Jhunjhunwala, a partner at Nangia-Andersen LLP, who also stated that the bill wants to “amend the punishment and prosecution provisions.”
“Penal provisions include a fine and harsh imprisonment for a duration not less than three months and that may extend to seven years with a penalty equivalent to the TDS deductible,” he said.
Although the Indian Parliament will yet adopt the clause before it can become a law, considering that Prime Minister Narendra Modi’s party currently controls both chambers of the legislature, this seems likely. The clause would become operative on April 1.
In the nine months after the publication of the tax legislation on cryptocurrencies, Indians transferred more than $3.8 billion in trading activity from domestic to international cryptocurrency exchanges. The “hidden” shift is anticipated to target foreign exchange-using retailers.
According to Rajat Mittal, a lawyer for the Indian Supreme Court’s crypto tax division, Indian sellers who are on overseas platforms typically employ P2P mechanisms to buy and sell cryptocurrency. If a retailer is responsible for paying a customer via a P2P network, they must subtract TDS from the payment. Users who don’t deduct TDS now risk being charged a 100% penalty in addition to the TDS liability previously imposed and the prospect of a 3 to 84-month prison sentence.
However, this might still be advantageous to the crypto community as it would tempt merchants to return to using their local exchanges.
A penalty for not deducting has never been imposed. That has now been created in the Budget of 2023, according to Ashish Singhal, co-founder of the Indian cryptocurrency trading software CoinSwitch Kuber.
Therefore, if you want to prevent TDS, you shouldn’t use platforms that are offshore or that are not compliant. Penalties may apply to you in accordance with Section 271C of the Income Tax Act. Use a tax-compliant platform if you’re investing in cryptocurrency, he advised.
Alternately, the penalty added to the law in 2023 may serve to further discourage cryptocurrency dealers after the laws are implemented in 2022. At the time, the industry had anticipated that the year would usher in a “period of pain.
This turned out to be ostensibly right, even if there were additional macroeconomic factors at play. The volume of cryptocurrency trade and public interest in the currency both decreased quickly.
Prior to now, several people directly involved in the regulation of cryptocurrencies have publicly stated their desire for a tax cut while secretly believing it to be impractical.
The TDS should be reduced to 0.01%, or at the very least, 0.1%, was the main demand from the sector and the consensus among policy think tanks.
According to Rajagopal Menon, Vice President of Indian cryptocurrency exchange WazirX, no modifications to the current crypto taxes have put Indian crypto enterprises on the path to paradise. They are hopeful that the government will change its mind about cryptocurrency taxes.
Despite stating that this was not good for our country and those building in this industry in India, CoinDCX co-founder Sumit Gupta said he was dedicated to collaborating with the government to devise laws that are favorable to the sustained development of the ecosystem.
Since early last year, India has kept a cryptocurrency bill dormant, claiming that global cooperation is essential for the success of crypto regulation, which it has prioritized with its ability to set the agenda as the G-20 presidency.
