Crypto tax from April 1: Exchanges say small investors will be impacted

As India’s new cryptocurrency tax rule is expected to be implemented from April 1, 2022 onwards, the leading exchanges say that the tax rates will impact the small investors heavily, further causing dip in trading volumes and investments into the sector. The new crypto taxation includes taxing the virtual digital assets at 30 per cent, with 1 per cent tax deductible at the source (TDS) and not carrying forward the losses. Although India, as per data collated from various exchanges, currently has $3 billion under cryptocurrency assets, a majority of the investors have a portfolio size of Rs 50,000-Rs 1 lakh, and it is this bracket which will be heavily impacted.

CoinDCX’s CEO and co-founder, Sumit Gupta told BT, however, that crypto taxation is a positive step and they certainly welcome it.

“But taxing crypto at a flat tax rate of 30 per cent, similar to gambling, does not augur well for a technology that has a huge potential in the long run. Additionally, the lack of an opportunity to offset expenses and carry forward losses will act as a deterrent for small businesses and will hamper wider adoption. While the Government has allowed carrying forward of losses in the shares trading business, crypto trading should have been given the same treatment,” Gupta added.

The industry is of the view that 1 per cent TDS will prove to be a huge compliance burden for exchanges since the platforms will have to keep a record of every transaction as well as cause wealth drain from the country with investors preferring foreign exchanges in comparison to local platforms.

For Ashish Singhal, founder and CEO of crypto exchange CoinSwitch Kuber, beyond what is proposed in the Budget with regard to the crypto tax, there can be a scope for further refinement.

"Higher TDS will choke the liquidity of the market. But the government has taken a consultative approach and has shown that start-ups are a huge part of the national agenda,” Singhal.

“Crypto as an industry has come a long way — from the days when crypto was banned to becoming a country of builders and crypto optimists, and now the government taxing us. As the next step of this evolution, I’m hopeful there’s scope to level the playing field and consider crypto at par with other asset classes,” Singhal added.

Nischal Shetty, CEO and founder WazirX, who has been a part of the online campaign to raise awareness on new laws, said recently in a series of tweets that India needs to implement favorable for crypto entrepreneurs and investors.

“Income tax should be on par with existing slabs. India has a huge number of youths in the 18-to-25-year range who are into crypto and not under the taxable income bracket. Government needs to consider the existing reality and tax accordingly which includes taxing the virtual digital assets (VDA) at 30 per cent, 1 per cent tax deductible at the source and not carrying forward the losses,” Shetty tweeted.

Shetty argued that 1 per cent TDS every time a crypto investor would sell could mean that the investor can get his entire capital locked in TDS if he traded a few hundred times.

“This makes it virtually impossible for day traders, high frequency traders, etc. Government has extra work of refunding all such TDS as well. Entrepreneurs in India are worried when authorities come knocking. The lack of clarity makes it difficult for law enforcement as well as entrepreneurs to function effectively. This is leading to a brain drain and Indian crypto ecosystem will suffer,” he added.