India, which has levied a one percent TDS on every crypto transaction, is once again facing suggestions regarding a change in the law. In its latest study, Delhi-based think tank Esya Center has advised the government to reduce TDS from 1 percent on crypto transactions to 0.01 percent. By doing this, India could generate more revenue from the Web3 sector than what it currently manages to generate. Reportedly, India may have lost $420 million (approximately Rs. 3,503 crore) since imposing this tax law on crypto activities in July last year.
In India, crypto profits are taxed at 30 percent and one percent tax is deducted at source (TDS) for each crypto transaction. At the time, India’s finance ministry had said that imposing taxes on crypto activities would keep otherwise largely anonymous crypto transactions somewhat traceable.
Soon after these laws were introduced last July, the average daily transaction volume on Indian exchanges WazirX, CoinDCX, BitBNS and Zebpay reportedly fell to $5.6 million (approximately Rs. 44 crore). Till June last year, this volume was around $10 million (approximately Rs. 80 crore).
In its report, Esya said that the decline in crypto engagement in India has continued for over a year now, hampering the growth of the sector.
“The one percent TDS levy appears intended to discourage speculative activities and increase traceability in the virtual digital asset (VDA) ecosystem. Our empirical analysis suggests that these objectives are still not being achieved,” said the report titled ‘Impact Assessment of Tax Deducted at Source on the Indian Virtual Digital Asset Market’.
Despite numerous calls for the government to reconsider this tax law, no changes have been made in the past year. The Bharat Web3 Association (BWA), which consists of Indian crypto and Web3 players, also criticized the TDS law but saw no initiative from the government for change.
As of August 2022, India had failed to score a spot on the index of the world’s most crypto-ready countries.
The slowdown in the growth of the crypto ecosystem in India has left exchanges high and dry. In August this year, CoinDCX laid off 12 percent of its workforce due to the impact of TDS on domestic exchanges. Reports of Indian crypto traders flocking to international exchanges have also made headlines in recent months.
“The one percent TDS has pushed Indian users to trade on offshore VDA exchange platforms and other untraceable channels. This in turn results in lost revenue to the exchequer and missed opportunities in the form of missed positive externalities for India’s digital economy,” the Esya report said.
Earlier, a report by Chase India and Indus Law had also advised the government of India to scrap the TDS law on crypto transactions.
So far, the government has not responded to these suggestions and calls from the crypto community. Meanwhile, it is estimated that only 0.07 percent of Indian crypto owners have actually declared and paid their taxes by the year 2022, while more than 99 percent of community members have evaded reporting their crypto taxes. The finding was published in April this year by Divly, a Sweden-based technology research company.
