India’s 1% TDS on crypto transfers brings in $19 million in 9 months
Indian tax authorities collected Rs 158 crore (about $19 million) in TDS on transfer of virtual digital assets (VDA) till March 20, Finance Minister Pankaj Chaudhary told Parliament on Tuesday.
Given that the financial year ended on March 31, it can be taken as the final figure for the entire financial year 2022-23.
1% TDS at threshold of $125
The Indian government brought crypto transactions under a new tax regime through the 2022-23 budget. It provided for 1% TDS on VDA remittances exceeding Rs 10,000 (about $125) in a financial year. In addition, all gains on VDA transfers were subject to an income tax of 30%.
1% TDS started being deducted from July 1, 2023. In November, the minister informed the Indian Parliament that TDS collection on VDAs from July 1 to November 1 was Rs 60.46 crore ($7.4 million) . Given the low tax collection, the government was expected to ease the tax rate to between 0.05% and 0.1%, in line with industry demands. But the authorities gave no such relief.
Regulatory vacuum
Subsequently, crypto transactions were placed under the Prevention of Money Laundering Act (PMLA). Industry representatives surprisingly hailed the decision as providing some sort of clarity, a break from a complete regulatory vacuum.
Due to the high taxes, along with a hostile regulatory environment, India, which had a burgeoning crypto ecosystem, began to cede the advantage to the nearby and friendlier jurisdictions such as the UAE and Singapore.
According to a Nasscom study, 60% of India’s 450 Web 3 startups are registered outside the country. The report also highlighted that India is well positioned to drive the Web 3 transformation thanks to its large talent pool, which accounts for 11% of the global market.
Crypto adoption is growing
According to the latest Statista data, India has 150 million crypto users. By the end of 2023, India’s crypto adoption rate could be higher than the UK and US, and 11% of the local population will have experimented with digital asset transactions.
India hosted the G20 finance minister and central bank governors last month, where the discussion on crypto regulations featured prominently. And it appears that by the end of 2023, the powerful economic bloc will have some form of regulation in place for the cryptocurrency sector.
