In her Budget 2022 speech, Finance Minister Nirmala Sitharaman proposed there would be a1% TDS on all virtual digital asset transfers.
Experts in India think this move will significantly hit crypto trading activities in the country.
Along with the 1% TDS, Sitharaman also proposed 30% tax on income from transfer of virtual digital assets, including crypto and NFTs.
In the absence of guidelines, the 1% TDS rule on transfer of virtual digital assets is going to be a compliance nightmare for both investors, traders and centralized exchanges.
Other experts maintain that the new laws will impact trading adversely and will prove to be dampener, as there is no provision to offset losses with other investments, in addition to a flat income tax of 30 percent. Crypto investors would shift to a peer-to-peer trading model and prefer decentralized exchanges, experts felt.
Intra-day frequent trading on exchanges will be impacted as TDS on multiple trades would mean a substantial deduction on trading income,
Is the government therefore scaring off the market, basically imposing a soft ban with the unfriendliness of the rules?
If a trader takes 10 trades in a month, he will have to earn at least 10 percent on these trades cumulatively, just to recover the TDS cost.
Although the rules have not been defined clearly when it comes to trades or ‘asset transfers’, brokerage and GST charges further mitigate earnings from cryptocurrencies. Whatever residual profits are left will now be subjected to capital gains other taxes, wiping away an considerable upside for investors.