Crypto Firms Seek Revision Of TDS To Incentivize Industry

Companies like CoinSwitch and ZebPay are hoping that TDS (tax deducted at source) on crypto will be revised in the upcoming budget. NFT firms like Rario said drawing a distinction between cryptocurrencies and collectibles may help the industry.

“India should incentivize users to stay within the national jurisdiction by reducing the burden of taxes. If the TDS aims to establish a trail of crypto transactions, it can be achieved by a lower TDS rate of 0.1%," said Ashish Singhal, CEO & co-founder of CoinSwitch, a crypto exchange.

Last April, the government imposed a 30% tax on income from crypto transactions. This was followed by an additional 1% TDS in July on the sale or transfer of digital assets.

The taxes were a major setback to an industry that was already reeling under an overall downturn and waning investor interest. It forced many to cut jobs and freeze new hiring. According to December data from crypto research firm CREBACO, trading volumes on Indian crypto exchanges CoinDCX, WazirX and ZebPay fell 97% last year.

Coinswitch’s Singhal said the 30% tax and 1% TDS without a provision to offset losses are responsible. “It is making the markets illiquid, and investor sentiment is running low. Such circumstances push consumers’ money offshore into the grey markets, exposing them to regulatory issues," he said.

Pratik Gauri, co-founder & CEO of 5ire, a blockchain startup, concurred that the massive decline of trading volumes is “concerning." He added that the “the fear of not attracting investments in the web3 innovative startups will impact the overall picture".

To be sure, funds raised by crypto firms worldwide declined by 42% last year, according to a report by crypto researcher CoinGecko published last week. Firms raised $21.26 billion in 2022, down from $37.06 billion in 2021, showing a drop in investor interest worldwide because of scandals surrounding crypto exchange FTX and crypto token Luna.

“It is vital to ensure that any taxation regime does not hamper the development of India’s talent in web3 and the supercharged innovative environment India has been experiencing recently," said Gauri.

The industry is also seeking similar protections for cryptos that are available to other assets such as stocks and bonds. Rahul Pagidipati, CEO, ZebPay, a crypto exchange, said clarity on taxation by reducing TDS and capital gains taxes and levelling them with other asset classes such as stocks and bonds will help the industry. He added the government should also create a progressive regulatory framework.

India doesn’t have a specific regulation or framework to govern cryptos at the moment. The Reserve Bank of India (RBI) has reiterated time and again that cryptos pose an inherent threat to the country’s macroeconomic and financial stability. RBI is in the process of rolling out a central bank digital currency (CBDC) on a pilot basis.

“All this will address the ongoing concerns and uncertainty about the industry by creating transparency and help industry players to protect users from any kind of black swan events like the FTX collapse," said Pagidipati.

NFT platforms also want the government to have separate taxes for crypto-based NFTs and non crypto-based tokens. “We sincerely also hope for a further revision in the definition of VDAs in the upcoming Finance Bill separating crypto-based tokens from non-crypto-based tokens and separate tax regimes for each. Our digital player cards are on a custom-made Rario blockchain, where we have no reliance on cryptocurrency whatsoever and they can be purchased only through fiat currency," said Ankit Wadhwa, Co-founder & CEO, Rario, an NFT startup.

The 2022 Finance Bill defines virtual digital assets (VDAs) as any tokens generated through cryptographic means. It also identified NFTs as VDAs.