India should consider reducing TDS rate for crypto trading to stem capital outflow, users: Report

India should consider a 1% TDS reduction for crypto trading as high rates are causing capital and users to shift to platforms in offshore jurisdictions and gray markets, a report said today. Tuesday.

Chase India and Indus Law’s ‘Evaluating the Impact of 1 Percent TDS on VDA’ report electronic money Platforms/exchanges must also perform due diligence on their clients, which can help uncover any potential future risks.

“The current 1% TDS for crypto trading, combined with the absence of comprehensive regulations, is causing capital and user flight to platforms in foreign jurisdictions and gray market,” it said.

The government, from April 1 of last year, introduced a 30% income tax plus a surcharge and halted transfers of virtual digital assets (VDAs), including cryptocurrencies, such as Bitcoin, Ethereum, fastener and dogecoin.

Also, to track cash flow, 1 percent TDS was applied to payments over Rs. 10,000 for virtual currency.

“The purpose of TDS is to establish a trace of cryptocurrency transactions and the same can be achieved by a lower TDS rate. The nominal TDS rate will also aid in tracking and tracing transactions, thus supporting tax collection if Indian investors continue to trade from India’s KYC-enabled platforms,” ​​said the report, which came out days before the expected 2023-24 Union Budget. ​on February 1st.

It also suggests that for safety and oversight purposes, the government must require all crypto platforms/exchanges to conduct detailed e-KYC verification for all investors/homes. transactions according to Aadhaar rules.

In the joint report, Chase India and Indus Law also stated that many exchanges have failed to follow the aforementioned TDS rules despite following their legal scope and mandate to conduct business under other laws and regulations of the country. India.

Many exchanges have been found to have exempted this from their business with unauthorized discretion. This loophole has thus led to a systematic ‘gray market’ scenario of such companies cum exchanges away from the tax barrier, it said.

In its recommendation, the study said: “Every exchange/platform must provide and must be authorized to submit transaction records to tax authorities. This will help tax authorities (CBDT) create produce a list of ‘valid’ exchanges that are TDS compliant.” The government, in a response to Parliament, last month said that it had collected more than Rs 60 crore as TDS for transactions in VDA.

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

A spokesperson for Chase India said: “Self-regulatory organizations (SROs) could be considered to fill regulatory gaps. It will encourage compliance, protect customers’ interests and promote promote ethical and professional standards among exchanges.” A spokesperson for Indus Law said: “Strict TDS provisions are leading to the use of non-tax compliant exchanges to avoid taxes. Such out-of-control transactions themselves can be where proliferation of financial crimes and other criminal activities.”