India Adopts 1% Tax on Cryptocurrencies

 The Indian government announced its plan to levy a tax on electronic assets in February, with the media paying special attention to the 30% tax imposed on income from digital asset investments. Along with the capital gains tax, the Indian Ministry of Finance has announced a 1% tax deduction at source (TDS) for all digital asset transfers above a certain size starting from July 1st.

In addition, the government of this country also does not allow compensation for losses in digital asset transactions.

The latest moves by the Government of India, although New Delhi has yet to explicitly state that it will allow cryptocurrency trading. India, with around 15 million active users in the crypto market, has been stuck in a regulatory limbo since 2020. At that time, the Supreme Court of India annulled only Central Bank directive banning regulated entities from working with digital asset companies.

When the government first announced the above taxes, the market received the news quite positively as it was interpreted as a sign that the South Asian country will not ban cryptocurrency transactions outright. But that changed as the industry delved deeper into the details of TDS.

Under the new policy, buyers of crypto assets must deduct 1% TDS on behalf of sellers if the transaction exceeds 10,000 rupees (about $132). Smaller transactions will also be taxed if 50,000 rupees are accumulated in a financial year. Investors will be refunded if the total amount set aside for TDS during the financial year exceeds their overall tax liability for the same period.

Experts note that when transactions are made on a centralized exchange, this exchange is responsible for deducting TDS for each transaction. On a decentralized exchange, where buyers and sellers interact without an intermediary, every transaction is usually anonymous. This makes TDS reception complicated. In addition, the implementation of the TDS system will also be nearly impossible on foreign trading platforms. Therefore, the tax will mainly reduce activity on local exchanges where the Indian Government has the greatest control. At one stage, investors will suffer a 1% loss because they sell Bitcoin (BitfinexUSD). Then on to the next step, they will have to deduct 1% tax for buying ETH from another seller. The accounting for these transactions would be extremely complex.


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