During the Union Budget 2022, Finance Minister Nirmala Sitharaman introduced a flat 30 per cent tax on all gains arising from the sale of virtual digital assets, including cryptocurrencies.
Moreover, the Finance Minister also introduced 1 per cent TDS on all crypto transactions. This led to a far and wide outcry amid the Indian crypto community which called the latest provisions “regressive” and “detrimental”.
Now a section of the crypto community is pointing out that the current system has loopholes as crypto taxes can be avoided by using decentralised exchanges (DEX) such as PancakeSwap and Uniswap, or by indulging in peer-to-peer crypto transactions. So, does this work? Can one work around the existing crypto tax regulations in the country?
We take a look.
In theory, yes this seems like valid reasoning. Using decentralised crypto exchanges -- which are exchanges that allow direct P2P cryptocurrency transactions without intermediaries and do not require KYC -- does seem like the way to go if you want to avoid taxes but crypto users need to realise that navigating decentralised tools are extremely complicated, and the risk is completely borne by the investor.
Moreover, the moment investors convert their crypto gains to fiat, they would have to pay taxes on them. Also, it would be utterly foolish to believe that India's tax department, and its financial intelligence and enforcement agencies, will not be aware of these developments. Some comments on the tweet also point to these factors.
Crypto educator and influencer Kashif Raza told Business Today that along with the tax rules, the government should have also issued a guideline to better implement the recent taxation. When asked if using DEX and P2P methods to avoid taxes is a good idea, he said: “Not a great idea at all. If the government has proposed taxes, then one should not find ways to avoid that as it is the duty of every citizen to declare and pay taxes. I feel the government should have come up with regulations first with proper guidelines on do's and don'ts and then they should have proposed taxes.”
When asked if the present crypto tax regime would promote grey markets and tax evasion, Pratik Gauri, co-founder, and CEO of 5ire blockchain told BT: “Every tax law, sooner or later, has a loophole detected in it, and India’s crypto tax law would not be an exception. [Using DEX and P2P] is similar to the idea of using just cash to avoid income taxes. The trick might work for a while, but the govt will catch up and it’ll become virtually impossible.”
One of the major reasons why evading taxes via DEX and P2P markets would not work, experts argue, is because investors would have to convert their crypto gains to fiat at some point in time; because only then would they be able to buy goods or services in India as cryptocurrencies are not a legal tender in the country yet.
However, there are still some places across the country which accept cryptocurrencies as a means of exchange.
Ardor2.1, a restaurant in the central part of India's capital New Delhi, accepts crypto payments for their ‘digital thali’. A tattoo parlor in Delhi's Greater Kailash, Devilz Tattooz, also accepts cryptocurrencies as a mode of payment. But such examples are rare.
Trying to evade crypto taxes via DEX and P2P might seem like a tempting option, but the underlying risks, as well as consequences, are important to keep in mind.
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