An Indian parliament member has warned that imposing a 1% tax deducted at source (TDS) on every crypto transaction will kill the nascent asset class.
This tax provision is contained in Finance Bill 2022 which Lok Sabha, the lower house of India’s parliament, has passed. However, India’s finance minister insists that the TDS on crypto transactions is for tracking purposes.
Lok Sabha, India’s lower house of parliament, passed Finance Bill 2022 Friday which includes a proposal to tax crypto income at 30% and impose a 1% tax deducted at source (TDS) on every crypto transaction. The 1% TDS will go into effect on July 1 while the 30% income tax will start levying on April 1.
Parliament member Ritesh Pandey raised concerns regarding the 1% TDS on crypto transactions. He explained in Lok Sabha how this tax will kill the crypto industry. For example, he said that if a user buys crypto, then transfers the coins to a wallet, and uses them to buy a non-fungible token (NFT), the user will be charged a 1% TDS at each stage. He exclaimed:
"When you impose a 1% TDS at three stages, it will give birth to red tapism. Doing so will also finish this asset class, which is very young."
However, Indian Finance Minister Nirmala Sitharaman claims that the 1% TDS on crypto is for tracking purposes and it is nothing new.
She said in parliament Friday: “TDS (tax deducted at source) is more for tracking. It is not an additional tax and not a new tax.” The finance minister emphasized:
"It is a tax that will help people track it, but at the same time the taxpayer can always reconcile it with the total tax to be paid to the government."
Nonetheless, many people in the crypto community in India agree with Parliament Member Pandey about the negative impact imposing a 1% TDS on crypto will have.
Aditya Singh, who co-founded the Crypto India Youtube channel, commented: “No loss setoff plus 1% TDS will force a lot of traders to stop day trading or to move to international exchanges & dex.” He added that “This will result in liquidity crises on Indian exchanges plus lower trading fee collection hence lower GST revenue” for the Indian government.
The founder of cryptocurrency exchange Wazirx, Nischal Shetty, noted that “1% TDS is an example of killing the golden goose.” He opined:
"Hope to see the government revisit this and reduce or eliminate this TDS in order to help the crypto industry grow further."