The government should consider reducing TDS (tax deducted at source) on cryptocurrency trading to less than one percent. The reason for this is capital outflow due to high tax rate and investors are leaving from forums and unauthorized markets coming in foreign jurisdictions. This was said in a report on Tuesday.
Chase India and Indus Law in their joint report titled ‘Impact of 1 per cent TDS on Virtual Digital Assets’ (VDA) said that platforms/marketplaces facilitating crypto trading should also due diligence on their customers. Due to this, if there is any possibility of risk in future, it can be brought to the fore.
According to the report, “In the absence of comprehensive regulation, the current one per cent TDS on crypto trading is leading to capital outflows, while on the other hand, clients are moving out of trading platforms and unauthorized markets in jurisdictions of other countries.” .”
It is noteworthy that from April 1 last year, the government imposed surcharge and cess along with 30 percent income tax on the transfer of ‘virtual digital assets’ like crypto currency including bitcoin, ethereum.
Also, one per cent TDS was levied on payment of ‘virtual’ digital currency above Rs 10,000.
According to the report, “The purpose of imposing TDS was to detect transactions in crypto. This target can also be achieved by reducing the rate of tax deducted at source. TDS at a lower rate will not only enable traceable transactions, but also increase tax collection if Indian investors continue to do business through Indian platforms with KYC (Know Your Customer)”.
This report has been released before the budget. Finance Minister Nirmala Sitharaman will present the budget for 2023-24 on February 1.
It also suggested that for security and surveillance purposes, the government should mandate all crypto markets/platforms to conduct detailed KYC verification of investors/traders, similar to the Aadhaar regulations.
Chase India and Indus Law also said in the report that many crypto markets are not following TDS rules despite coming under the purview of the rule. In many cases, it has been seen that the crypto platform has been wrongly exempted. These flaws need to be removed.