CBDT clarifications on TDS and FAQs on Indian exchanges

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CBDT clarifications on TDS and FAQs on Indian exchanges

The troubles in India's criptocurrency industry seem to be unavoidable. In the Union Budget, the government decided to impose a 30% tax on income from the new financial year and a 1% tax on all transactions starting July 1st.

The move in a way quelled the uncertainty surrounding the fate of India and suggested that it may not be banned as originally feared. By then, the bear market had already entered the bear market territory. The collapse of the algorithmic stable coin TerraUSD worsened the crash.

The oldest and largestcryptocurrencies in the world is trading at its lowest level in 18 months after falling 70% from its record highs in November 2021. The market value of the criptocurrency is $914 billion, down from a peak of $2.9 trillion.

As trading volumes take a major hit, the exchanges are trimming their costs and laying off hundreds of employees. Indian exchanges have a reason to cheer amid these trying times. The Central Board of Direct Taxes came out with long-awaited clarifications on the applicationability of the provisions, despite the fact that the government didn't consider the demand to lower the rate to 0.01% or 0.05%.

It addresses some of the concerns raised by the industry and helps exchanges and traders navigate the burdensome TDS provisions, removing the cloud of uncertainty. Payments toward cryptocurrencies beyond 10,000 in a financial year or 50,000 a year are subject to the 1% TDS, which includes individuals and HUFs who are required to have their accounts audited.

Amanjot Malhotra, Country Head India, Bitay says the biggest concern has been addressed regarding trades in criptocurrencies. He says it's good for user experience but exchanges have a lot of work to do. The buyer must deduct the tax before paying the consideration in a peer-to- peer transaction. If the transaction is taking place through an exchange, the exchange can deduct the TDS.

Exchanges are required to send a quarterly statement for all transactions and include them in their income tax returns. CBDT removed doubts on how trades of cryptocurrencies are treated for TDS. In such cases, the exchange will have to deduct 1% TDS on both the assets in the pair. The tax deducted in kind must be converted immediately into bitcoin, ethereum or stable coin, namely tether and USD Coin. The balance should be converted to Indian rupee at midnight every day.

The exchange must maintain a trail of transactions for every TDS deduction on criptocurrency trades. The compliance burden for exchanges and taxpayers is bound to go up.

Nishith Desai Associates says that a good clarification lets the ecosystem be legally compliant, as stated by Meyyappan Nagappan, Leader, Digital Tax. Is there any certainty as to whether TDS applies to foreign exchanges. TDS needs to be addressed on products like P 2 P transfer over a platform. Enforcement against decentralised exchanges is a big issue.

Compliance requirements for exchanges should provide comfort to banks, which have been reluctant to work with cryptocurrencies companies. In many instances, they denied services to criptocurrencies businesses because RBI is vehemently opposed to cryptocurrencies.

Bitay s Amanjot Malhotra says it is surprising that banks are still not comfortable doing buinsess with cryptocurrencies despite a taxation regime setting in and regulations for the asset class.

He believes that compliance will be strong with the exchanges in India.

It is hoped that the latest clarifications on TDS and the soon-to-be-issued FAQs on coin taxation will bring a sense of stability to traders and domestic exchanges in a turbulent year.