Explained: What does 1% TDS on cryptocurrencies mean to you?
With one percent deductible source ( TDS) rule for cryptocurrency transactions that take effect from July 1, the volumes of Indian crypto exchanges have fallen over 70% in the last four days. At the beginning of April, trading volumes on cryptocurrency exchanges were down 30-70% after the 30% tax on cryptocurrencies came into force. India is also considering charging a 28 percent goods and sales tax (GST) on crypto.
What is this TDS
According to the rules, it is mandatory for the buyer of a virtual digital asset to deduct 1 percent of the amount paid to the seller (Indian resident). TDS came into force on 1 July for transactions over Rs 10,000. Therefore, if an Indian citizen sells assets like Bitcoin, Ethereum, TetherBNB, Shibu Inu, Solana and Dogecoin etc., he / she will receive 1% minus the value of the assets at the sale price.
“The new section mandates a person responsible for paying any resident an amount as consideration for the transfer of a virtual digital asset (VDA), to deduct an amount corresponding to 1 percent of the amount as income tax on this. The tax deduction is required to be made at the time of crediting such a sum on the resident’s account or at the time of payment, depending on what occurs earlier “, the Central Board for Direct Tax states in a statement dated 22 June.
The tax deduction obligation pursuant to section 194S of the Act only applies when the value or the total value of the consideration for the transfer of VDA exceeds Rs 50,000 during the financial year in the event that consideration is paid by the specified person and Rs 10,000 in other cases.
How is it deducted?
First, the TDS collected must be paid to the income tax department in INR. For this, TDS collected in the form of Crypto must be converted to INR. For easy conversion and to reduce price slippage, in Crypto to Crypto transactions, TDS for both sides will be deducted from the quote (or the primary) Crypto asset.
The WazirX markets have four offer assets – INR, USDT, BTC and WRX. For example, in the following markets: MATIC-BTC, ETH-BTC and ADA-BTC, BTC is the quote Crypto-asset, and therefore TDS for both buyer and Sellers trading in these markets will be deducted from BTC, “said Rajagopal Menon, Vice President of Crypto-Trading Platform WazirX.
For example:
• INR Markets: 1 BTC traded for 100 Rs. After TDS, the BTC seller receives 99 Rs and the BTC buyer receives 1 BTC (no TDS deducted)
Crypto-crypto markets
1 BTC sold for 10 ETH. BTC seller receives 10 ETH by paying 1.01 BTC (after 1% TDS surcharge). BTC buyer receives 0.99 BTC (after 1% TDS deduction)
In a blog dated June 24, CoinSwitch gave an example. Imagine you have to sell 10 tokens (name the device as A). The selling price for each token is currently Rs 20 (Entity B). Commission and service fee at CoinSwitch, including discount, exchange fee and GST (Entity D), let’s say is Re 1. The total token sales value = A x W: 10 x Rs 20 = ₹ 200 (Entity C). Meanwhile, net sales will be = C – D = Rs 200 – Rs 1 = Rs 199. Then TDS will play the role of the symbolic sales amount (ie 1% of Rs 199, or Rs 1.99) (Entity E). That said, the final amount will be reflected in your CoinSwitch account = C – D – E = 200-1-1.99 = Rs 197.01.
TDS will be deducted, regardless of the basic income tax exemptions. However, you can claim a refund if your total tax liability is zero or lower than what you have already paid in the form of a TDS while submitting your annual tax return. In addition, TDS is relevant for sales transactions. The trading platform you use will deduct this amount and transfer it to the tax authorities on your behalf. TDS will not be applicable to purchase transactions in most cases.
How is TDS deducted in case of an NFT?
In the case of an NFT, sellers in India who trade in either cryptocurrency or fiat currency (to profit from selling their VDAs) will be charged 1% TDS on the transaction amount.
For example:
NFT selling price = $ 100 (A)
Artist fee = 5% (B) & service fee (incl. GST) = 2.95% (C)
Net sales amount = (A) – (B) – (C) = USD 100 – USD 5 – USD 2.95 = USD 92.05
1% TDS will apply to the net sales amount, ie 1% of $ 92.05 = $ 0.92 (D)
The actual amount deposited into the user’s jump.trade wallet will be: (A) – (B) – (C) – (D) = $ 100 – $ 5 – $ 2.95- $ 0.92 = $ 91.13
Jump.trade will pay any amount collected as TDS at the time of trading with the tax authorities on behalf of the user. Details of TDS from various sources of income can be seen on your Form 26AS statement. This amount can be adjusted against your gross tax liability on the time of filing the tax return, “explained Kameshwaran Elangovan, co-founder and Chief Operating Officer of GuardianLink.
What does this mean for an investor?
This would mean that investors would lose 1 percent on each trade. Although any TDS amount over tax due will eventually be refunded, it will have a crippling effect on the capital of day traders and short-term investors.
Day traders will definitely feel the pinch because even 1% TDS on each transaction will add up to a fairly large number by the end of the month, eroding their working capital margin. The threshold for TDS is quite low, which can lead traders to avoid selling their “In total, it is expected that trading volumes will decrease due to these factors,” said Ankit Jain, Partner, Ved Jain & Associates.
“The government has introduced 1% TDS on each crypto trade to track transactions and stop tax evasion. Due to the introduction of TDS from 1 July, the spot / intra-day trading volume on crypto exchanges has fallen to over 70-75% compared to the volume The main stakeholders have expressed their concern as the current rate of TDS will reduce the capital available to traders, as TDS is applied to each individual trade. held due to this deduction have serious consequences on spot / intra-day trading in crypto.However, the actual impact of this order has not yet been tested in future times, and it is expected that this move will increase confidence in investors who want to go into the crypto market, “said Ashutosh K. Srivastava, Senior Associate, SKV Law Offices.
According to Jain, the introduction of TDS on cryptocurrencies will increase the cash requirement for crypto traders since each transaction a small amount will be reduced from the cash available for trading.
How is TDS different from 30% capital gains tax?
TDS is a tax that is withheld at source at the time of the transaction itself. This tax can be adjusted against your total tax liability. TDS under section 194S will be deducted by the buyer at the time of transfer of consideration to the seller.
For the transfer of virtual digital assets (cryptocurrencies, NFTs, etc.), users are required to pay 30% tax in accordance with section 115BBH, plus the applicable surcharge and cess, on capital gains (profits) at the time of filing the tax return . This will be done on the basis of self-assessment.
Crypto trading is moving to the gray market
Several industry insiders pointed out that trading has moved into the gray market on decentralized exchanges or international exchanges.
“1% TDS has certainly affected trading volume across platforms. But the important question is whether users are trading less frequently or whether trading has moved to the gray crypto market.
In India, KYC-compliant exchanges and platforms have established a framework to comply with TDS in accordance with the Government Notice. To increase transparency and help users with their annual returns, CoinSwitch also provides users with transaction notes with detailed deductions and quarterly Form16A reports. However, these similarities may not apply in the gray market where there is no visibility of the user’s real identity or the scope of transactions. Fear is high TDS may prevent users from trading within KYC-compliant platforms. The purpose of TDS is to establish a track of the transaction. The same can be achieved with a lower TDS rate. This encourages users to stay on KYC compliant platforms and within the regulatory area. User protection and tax compliance can coexist, “said Ashish Singhal, co-founder and CEO, CoinSwitch.
Amajot Malhotra, governor of Bitay, believes the Indian government will also lose the opportunity to earn huge tax revenues due to a decline in cryptocurrency transaction volume on platforms.
What is this TDS
According to the rules, it is mandatory for the buyer of a virtual digital asset to deduct 1 percent of the amount paid to the seller (Indian resident). TDS came into force on 1 July for transactions over Rs 10,000. Therefore, if an Indian citizen sells assets like Bitcoin, Ethereum, TetherBNB, Shibu Inu, Solana and Dogecoin etc., he / she will receive 1% minus the value of the assets at the sale price.
“The new section mandates a person responsible for paying any resident an amount as consideration for the transfer of a virtual digital asset (VDA), to deduct an amount corresponding to 1 percent of the amount as income tax on this. The tax deduction is required to be made at the time of crediting such a sum on the resident’s account or at the time of payment, depending on what occurs earlier “, the Central Board for Direct Tax states in a statement dated 22 June.
The tax deduction obligation pursuant to section 194S of the Act only applies when the value or the total value of the consideration for the transfer of VDA exceeds Rs 50,000 during the financial year in the event that consideration is paid by the specified person and Rs 10,000 in other cases.
How is it deducted?
First, the TDS collected must be paid to the income tax department in INR. For this, TDS collected in the form of Crypto must be converted to INR. For easy conversion and to reduce price slippage, in Crypto to Crypto transactions, TDS for both sides will be deducted from the quote (or the primary) Crypto asset.
The WazirX markets have four offer assets – INR, USDT, BTC and WRX. For example, in the following markets: MATIC-BTC, ETH-BTC and ADA-BTC, BTC is the quote Crypto-asset, and therefore TDS for both buyer and Sellers trading in these markets will be deducted from BTC, “said Rajagopal Menon, Vice President of Crypto-Trading Platform WazirX.
For example:
• INR Markets: 1 BTC traded for 100 Rs. After TDS, the BTC seller receives 99 Rs and the BTC buyer receives 1 BTC (no TDS deducted)
Crypto-crypto markets
1 BTC sold for 10 ETH. BTC seller receives 10 ETH by paying 1.01 BTC (after 1% TDS surcharge). BTC buyer receives 0.99 BTC (after 1% TDS deduction)
In a blog dated June 24, CoinSwitch gave an example. Imagine you have to sell 10 tokens (name the device as A). The selling price for each token is currently Rs 20 (Entity B). Commission and service fee at CoinSwitch, including discount, exchange fee and GST (Entity D), let’s say is Re 1. The total token sales value = A x W: 10 x Rs 20 = ₹ 200 (Entity C). Meanwhile, net sales will be = C – D = Rs 200 – Rs 1 = Rs 199. Then TDS will play the role of the symbolic sales amount (ie 1% of Rs 199, or Rs 1.99) (Entity E). That said, the final amount will be reflected in your CoinSwitch account = C – D – E = 200-1-1.99 = Rs 197.01.
TDS will be deducted, regardless of the basic income tax exemptions. However, you can claim a refund if your total tax liability is zero or lower than what you have already paid in the form of a TDS while submitting your annual tax return. In addition, TDS is relevant for sales transactions. The trading platform you use will deduct this amount and transfer it to the tax authorities on your behalf. TDS will not be applicable to purchase transactions in most cases.
How is TDS deducted in case of an NFT?
In the case of an NFT, sellers in India who trade in either cryptocurrency or fiat currency (to profit from selling their VDAs) will be charged 1% TDS on the transaction amount.
For example:
NFT selling price = $ 100 (A)
Artist fee = 5% (B) & service fee (incl. GST) = 2.95% (C)
Net sales amount = (A) – (B) – (C) = USD 100 – USD 5 – USD 2.95 = USD 92.05
1% TDS will apply to the net sales amount, ie 1% of $ 92.05 = $ 0.92 (D)
The actual amount deposited into the user’s jump.trade wallet will be: (A) – (B) – (C) – (D) = $ 100 – $ 5 – $ 2.95- $ 0.92 = $ 91.13
Jump.trade will pay any amount collected as TDS at the time of trading with the tax authorities on behalf of the user. Details of TDS from various sources of income can be seen on your Form 26AS statement. This amount can be adjusted against your gross tax liability on the time of filing the tax return, “explained Kameshwaran Elangovan, co-founder and Chief Operating Officer of GuardianLink.
What does this mean for an investor?
This would mean that investors would lose 1 percent on each trade. Although any TDS amount over tax due will eventually be refunded, it will have a crippling effect on the capital of day traders and short-term investors.
Day traders will definitely feel the pinch because even 1% TDS on each transaction will add up to a fairly large number by the end of the month, eroding their working capital margin. The threshold for TDS is quite low, which can lead traders to avoid selling their “In total, it is expected that trading volumes will decrease due to these factors,” said Ankit Jain, Partner, Ved Jain & Associates.
“The government has introduced 1% TDS on each crypto trade to track transactions and stop tax evasion. Due to the introduction of TDS from 1 July, the spot / intra-day trading volume on crypto exchanges has fallen to over 70-75% compared to the volume The main stakeholders have expressed their concern as the current rate of TDS will reduce the capital available to traders, as TDS is applied to each individual trade. held due to this deduction have serious consequences on spot / intra-day trading in crypto.However, the actual impact of this order has not yet been tested in future times, and it is expected that this move will increase confidence in investors who want to go into the crypto market, “said Ashutosh K. Srivastava, Senior Associate, SKV Law Offices.
According to Jain, the introduction of TDS on cryptocurrencies will increase the cash requirement for crypto traders since each transaction a small amount will be reduced from the cash available for trading.
How is TDS different from 30% capital gains tax?
TDS is a tax that is withheld at source at the time of the transaction itself. This tax can be adjusted against your total tax liability. TDS under section 194S will be deducted by the buyer at the time of transfer of consideration to the seller.
For the transfer of virtual digital assets (cryptocurrencies, NFTs, etc.), users are required to pay 30% tax in accordance with section 115BBH, plus the applicable surcharge and cess, on capital gains (profits) at the time of filing the tax return . This will be done on the basis of self-assessment.
Crypto trading is moving to the gray market
Several industry insiders pointed out that trading has moved into the gray market on decentralized exchanges or international exchanges.
“1% TDS has certainly affected trading volume across platforms. But the important question is whether users are trading less frequently or whether trading has moved to the gray crypto market.
In India, KYC-compliant exchanges and platforms have established a framework to comply with TDS in accordance with the Government Notice. To increase transparency and help users with their annual returns, CoinSwitch also provides users with transaction notes with detailed deductions and quarterly Form16A reports. However, these similarities may not apply in the gray market where there is no visibility of the user’s real identity or the scope of transactions. Fear is high TDS may prevent users from trading within KYC-compliant platforms. The purpose of TDS is to establish a track of the transaction. The same can be achieved with a lower TDS rate. This encourages users to stay on KYC compliant platforms and within the regulatory area. User protection and tax compliance can coexist, “said Ashish Singhal, co-founder and CEO, CoinSwitch.
Amajot Malhotra, governor of Bitay, believes the Indian government will also lose the opportunity to earn huge tax revenues due to a decline in cryptocurrency transaction volume on platforms.
