India has a love-hate relationship with cryptocurrency. In 2018, the Reserve Bank of India banned cryptocurrencies. The nationwide ban received backlash from the Indian crypto community that fought back to win the case in March 2020.
Moving forward to 2022, after the crypto boom, the Indian government stepped in and introduced much-needed taxation on cryptocurrencies. The government imposed 30% tax on capital gains and a flat 1% TDS on every crypto transaction under section 194S of the Income Tax Act.
The news was welcoming but at the same time disheartening. In a way, it made cryptocurrency legal in India but on the other hand 30% tax on capital gains became a bigger headache for traders and investors hoping to reap higher gains from the industry.
The retail investors refrained from trading cryptocurrencies as 1% TDS is strong enough to eliminate the gains left after 30% tax. Not to mention, the losing trades are also charged with 1% TDS. The largest crypto exchange in India i.e Wazirx reported a sharp decline in the daily trading volume that resulted in the layoff of nearly 40% of its staff in October 2022.
The industry is demanding a better tax structure in the new financial year with TDS to cut from 1% to 0.01% on every crypto transaction. The industry stalwarts might be lobbying to push crypto to use however, the government seems to have other plans.
As reported by Livemint earlier this year, the Indian government is planning to add Goods & Services Tax (GST) on top of the existing tax structure for cryptocurrency. The GST taxation is expected to range anywhere between 18% to 28%. As per the recent reports, it may be charged at a flat 28%, the decision is yet to be finalized by the ministry.
It is also important to note that GST will be charged on the service or margin fees charged by the exchanges and not on the complete VDA (Virtual Digital Asset). It is more of a wait-and-watch game until we hear about the next budget session by the Finance Minister.
Will the government reduce 1% TDS or will it ease the 30% tax on capital gains? Wait for 2023
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Paras is a blockchain writer & video creator at Katoch Tubes. In his free time, he loves watching space exploration documentaries & Hollywood movies.