1% TDS rate on crytocurrency trade causing capital, users to go abroad, says report

45
3
1% TDS rate on crytocurrency trade causing capital, users to go abroad, says report

India should reduce the 1 per cent on crytocurrency trade because a high rate is causing a flight of capital and users to platforms in foreign jurisdictions and the grey market, a report said on Tuesday.

The 'Impact Assessment' of 1 per cent on VDAs' report by Chase India and Indus Law said the platforms exchanges must also perform customer due diligence which can help uncover any potential future risk.

The existing 1 per cent on the criptocurrency trade is causing a flow of capital and users to platforms in foreign jurisdictions and the grey market, it said.

The government has brought in a 30 per cent income tax plus surcharge and cess on transfer of virtual digital assets like Bitcoins,Ethereum, Tether and Doge coin from April 1 last year.

A 1 per cent TDS has been brought in on payments over 10,000 towards virtual currency to keep a tab on the money trail.

The TDS was created to establish a trail of transactions, and the same can be achieved by a lower TDS rate. The report, which came days before the 2023 -- 24 Union Budget on February 1, said that a nominal TDS rate would support tracking and tracing transactions, thus aiding in tax collections if Indian investors continued to trade from Indian KYC enabled platforms.

The government must ask all platforms to conduct e-KYC authentication on all investors in line with the Aadhaar rules for the purpose of safety and oversight.

In the joint report from Chase India and Indus Law, Chase India and Indus Law said that many exchanges have not followed the TDS rules despite the legal purview and mandate of conducting business under other Indian laws and regulations.

Many exchanges have been found to have unauthorised discretion when it comes to exempting this in their business practice. This loophole has led to a systemic 'grey market scenario of such exchanges-cum companies from the fence of taxation, it said.

In its recommendation, the study said that every exchange platform should provide and be mandated with the submission of transaction records to the tax regulatory authority. This would help the CBDT to create a directory of 'valid' exchanges that are following the TDS norm. The government, in a reply to Parliament, said last month that it had collected more than 60 crore as TDS for transactions in VDAs.

The report said that in the absence of certain exchanges contributing to the tax clause, the government will miss out on a potential revenue system generated through these trade channels.

A Self-Regulatory Organization SRO can be considered to fill regulatory gaps, according to a statement from Chase India. It would promote customer interest, protect customer interest, and promote ethical and professional standards among the exchanges. Indus Law spokeswoman said that stringent TDS provisions are leading to non-tax compliant exchanges being used to avoid tax. Such off the radar transactions may be a breeding ground for financial crimes and other criminal activities.