India, that has levied a one percent TDS on each crypto transaction, is again facing suggestions regarding a change in the law. In its latest study, Delhi-based think tank Esya Centre has advised the government to slash its 1 percent TDS on crypto transactions to 0.01 percent. In doing so, India could garner more revenue from the Web3 sector than what it’s managing to churn at present. It is reportedly estimated that India may have lost $420 million (roughly Rs. 3,503 crore) since having imposed this tax law on crypto activities in July last year.
In India, crypto gains are taxed at 30 percent and each crypto transaction sees a one percent tax deducted at source (TDS). At the time, the Indian finance ministry had said that levying taxes on crypto activities would keep the otherwise largely anonymous crypto transactions, somewhat traceable.
Soon after these laws were deployed last July, the average daily transaction volume on Indian exchanges WazirX, CoinDCX, BitBNS, and Zebpay had reportedly dipped to $5.6 million (roughly Rs. 44 crore). Up until June last year, this volume was around $10 million (roughly Rs. 80 crore).
In its report, Esya said the drop in crypto engagement in India has continued for over a year now, which is hindering the growth of the sector.
“The one percent TDS levy seems intended to discourage speculative activity and increase traceability in the virtual digital asset (VDA) ecosystem. Our empirical analysis suggests these goals remain unmet,” said the report titled ‘Impact Assessment of Tax Deducted at Source on the Indian Virtual Digital Asset Market’.
Despite numerous appeals to the government regarding the reconsideration of this tax law, no changes have been introduced in the past year. The Bharat Web3 Association (BWA), that is comprised of Indian crypto and Web3 players, also criticised the TDS law but saw no initiative from the government towards change.
By August 2022, India had failed to score a spot on the index of the world’s most crypto-ready nations.
The slowdown in India’s crypto ecosystem growth has left exchanges high and dry. In August this year, CoinDCX laid off twelve percent of its workforce owing to the impact of TDS on domestic exchanges. Reports about Indian crypto traders flocking to international exchanges also made it to the headlines these past months.
“The one percent TDS has led Indian users to trade on offshore VDA exchange platforms and other untraceable channels. This, in turn, results in lost revenue for the exchequer and lost opportunities in the form of foregone positive externalities for the digital economy in India,” the Esya report has noted.
Previously, a report by Chase India and Indus Law had also advised the government of India to slash the TDS law on crypto transactions.
As of now, the government has not reacted to these suggestions and urges from the crypto community. Meanwhile, it is estimated that only 0.07 percent of Indian crypto owners actually declared and paid their taxes in the year of 2022 while over 99 percent of the community members evaded filing their crypto taxes. The finding was published by Divly, a Sweden-based tech research firm in April this year.
