India’s 1 percent TDS on crypto transactions needs to be reduced to 0.01 percent: Study

India, which has imposed one percent TDS on every crypto transaction, is again facing suggestions regarding changes in the law. In its latest study, Delhi-based think tank Esya Center has advised the government to reduce its 1 percent TDS on crypto transactions to 0.01 percent. In doing so, India could earn higher revenues from the Web3 sector than it currently earns. It is reportedly estimated that India has suffered a loss of $420 million (approximately Rs 3,503 crore) since the implementation of this tax law on crypto activities in July last year.

In India, crypto profits are taxed at 30 percent and there is one percent tax deducted at source (TDS) on every crypto transaction. At the time, the Indian Finance Ministry had said that taxing crypto activities would keep otherwise largely anonymous crypto transactions traceable to some extent.

Soon after the implementation of these laws last July, the average daily transaction volume on Indian exchanges WazirX, CoinDCX, BitBNS and Zebpay reportedly fell to $5.6 million (about Rs 44 crore). Till June last year, this volume was around $10 million (about Rs 80 crore).

Esya said in its report that the decline in crypto participation in India has continued for more than a year, which is hindering the growth of the sector.

“The one per cent TDS levy aims to discourage speculative activity and enhance traceability in the Virtual Digital Asset (VDA) ecosystem. “Our empirical analysis shows that these goals have still not been met.” Said The report is titled ‘Impact Assessment of Tax Deduction at Source on the Indian Virtual Digital Asset Market’.

Despite several appeals to the government to reconsider this tax law, no changes have been made last year. The Bharat Web3 Association (BWA), which comprises Indian crypto and Web3 players, also criticized the TDS law, but saw no initiative from the government towards change.

As of August 2022, India had failed to secure a spot in the index of the world’s most crypto-ready countries.

The slowdown in the growth of India’s crypto ecosystem has hit exchanges hard. In August this year, CoinDCX laid off twelve percent of its workforce due to the impact of TDS on domestic exchanges. News of Indian crypto traders venturing into international exchanges also made headlines in the past months.

“The one per cent TDS has led Indian users to trade on offshore VDA exchange platforms and other untraceable channels. This results in lost revenue for the exchequer and lost opportunities in the form of positive externalities for the digital economy in India,” the Esya report said.

Earlier, a report by Chase India and Indus Law also advised the Indian government to ease the TDS law on crypto transactions.

At present, the government has not responded to these suggestions and requests of the crypto community. Meanwhile, it is estimated that only 0.07 percent of Indian crypto owners actually declared and paid their taxes in 2022, while more than 99 percent of community members avoided filing their crypto taxes. The findings were published by Sweden-based technology research firm Divli in April this year.


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