A CoinDCX report suggests that reducing TDS on cryptocurrencies could enhance compliance and tax transparency.
CoinDCX claims that the one percent TDS on cryptocurrencies has resulted in a ’90 percent drop’ in trading volumes, consequently leading to a decrease in investor income.
CoinDCX has released a report addressing issues with India’s current crypto tax policies, urging the government to implement reforms to enhance compliance and tax transparency. The FIU-registered crypto exchange joins numerous other firms in appealing to the government to lower taxes on cryptocurrencies, including the one percent tax deducted at source (TDS) for crypto transactions and the 30 percent tax on income generated from crypto activities.
In its report titled “Redesigning TDS for Transparency and Compliance,” the Indian crypto firm argues that the one percent TDS on all crypto transactions, initially intended as a transparency and compliance measure, does not align with the nature of digital asset markets and results in losses for industry participants.
The report highlights that modern economic literature suggests a marginal tax rate is inversely correlated with reported income and positively correlated with tax evasion, a trend observed with the imposition of the one percent TDS on virtual digital assets (VDAs) in India.
According to CoinDCX’s recent report, an analysis of India’s crypto tax system suggests that individuals who have previously evaded taxes may have been influenced by the higher marginal tax rate. The company also asserts that the imposition of a one percent TDS has resulted in a significant 90 percent decrease in trading volumes, potentially leading to reduced income for investors.
This isn’t the first instance where crypto firms and related entities have appealed to the government to reduce taxes on crypto transactions in India. Earlier this year, calls were made via social media to lower the 30 percent tax on incomes from crypto activities and to decrease the TDS rate from one percent to 0.01 percent.
Despite these requests, Finance Minister Nirmala Sitharaman’s interim budget announcement for the year did not include any alterations to the crypto tax framework.
The finalized budget will be revealed after the ongoing general elections, but it remains uncertain whether there will be any new developments regarding taxes on crypto activities in the coming months.
CoinDCX and the Bharat Web3 Association have called on the government to reconsider the crypto TDS policy.
“In terms of revenue collection, a tax rate ranging from 0.01 percent to 0.05 percent should be adequate to gather all income tax owed by market makers, while still allowing them to maintain competitive spreads. Alternatively, a system could be introduced that doesn’t involve withholding tax on transactions, such as Annual Information Returns (AIR), which, combined with the Prevention of Money Laundering Act 2002 (PMLA), can ensure adequate oversight,” the firm explains in its report.
Gadgets360 has contacted the finance ministry for a response to the report, and this article will be revised with their comments once they are received.
