India Ought to Contemplate Decreasing TDS Fee on Cryptocurrency Commerce to Stem Flight of Capital, Customers: Report

India ought to think about decreasing the 1 p.c TDS on cryptocurrency commerce as a excessive price is inflicting a flight of capital and customers to platforms in international jurisdictions and the gray market, a report mentioned on Tuesday.

The ‘Impact Assessment of 1 p.c TDS on VDAs’ report by Chase India and Indus Law mentioned the crypto platforms/exchanges should additionally carry out buyer due diligence which may help uncover any potential future threat.

“The existing 1 percent TDS on crypto trade, combined with the absence of comprehensive regulations, is causing a flight of capital and users to platforms in foreign jurisdictions and the grey market,” it mentioned.

The authorities, from April 1 final yr, has introduced in a 30 p.c revenue tax plus surcharge and cess on switch of digital digital property (VDAs), together with cryptocurrencies, like Bitcoin, Ethereum, Tether and Dogecoin.

Also, to maintain a tab on the cash path, a 1 p.c TDS has been introduced in on funds over Rs. 10,000 in the direction of digital digital currencies.

“The purpose of the TDS is to establish a trail of crypto transactions, and the same can be achieved by a lower TDS rate. A nominal TDS rate would also support tracking and tracing of transactions, thus aiding in tax collections if Indian investors continued to trade from Indian KYC-enabled platforms,” mentioned the report, which got here days earlier than the 2023-24 Union Budget slated on February 1.

It additionally recommended that for the aim of security and oversight, the federal government should ask all crypto exchanges/platforms to conduct an in depth e-KYC authentication on all traders/merchants consistent with the Aadhaar guidelines.

In the joint report, Chase India and Indus Law additionally mentioned that many exchanges haven’t been following the mentioned TDS guidelines regardless of coming beneath the authorized purview and mandate of conducting enterprise beneath different Indian legal guidelines and laws.

Many exchanges have been discovered to exempt this of their enterprise observe with unauthorised discretion. This loophole has thus led to a systemic ‘gray market’ state of affairs of such exchanges-cum-companies from the fence of taxation, it mentioned.

In its advice, the research mentioned: “Every exchange/platform must provide and should be mandated for the submission of transaction records to the tax regulatory authority. This would help the tax authorities (CBDT) create a directory of ‘valid’ exchanges who are following the TDS norm.” The authorities, in a reply to Parliament, had final month mentioned that it has collected greater than Rs 60 crore as TDS for transactions in VDAs.

“In the absence of certain exchanges contributing to the tax clause, the government will miss out on a potential revenue system generated through these trade channels,” the report mentioned.

Chase India spokesperson mentioned: “A Self-Regulatory Organisation (SRO) can be considered to fill the regulatory gaps. It would encourage compliance, protect customer interest, and promote ethical and professional standards amongst the exchanges.” Indus Law spokesperson mentioned, “Stringent TDS provisions are leading to non-tax compliant exchanges being used to avoid tax. Such off the radar transactions may itself be a breeding ground for financial crimes and for other criminal activities.”