Loss of Revenue for Indian Government due to Crypto Taxation
The Indian government’s controversial stance on crypto taxation has led to a potential loss of $420 million in revenue as traders have moved their transactions outside the country. Experts recommend a more relaxed approach to the taxation policy to align with government objectives.
A study by Delhi-based think tank Esya Centre suggests reducing the 1% transaction tax deducted at the source (TDS) to 0.01% to increase revenue and transparency.
Impact of TDS on Indian Crypto Traders
The TDS, considered a form of income tax, has caused approximately five million crypto traders to shift transactions offshore, resulting in a $420 million potential revenue loss for the government since its introduction in July 2022.
An Esya Centre study revealed that Indians redirected over $3.8 billion in trading volume from local to international crypto exchanges after the controversial rules were announced.
Millions of Indian users transitioned to offshore platforms, resulting in a surge in web traffic, active users, and downloads from Indians on offshore platforms post-July 2022, accompanied by a decline in Indian VDA exchanges during the same period.
The TDS provision, initiated on July 1, 2022, without any government relief, had a significant impact on investors, highlighting users’ strong inclination for relief from the 1% TDS.
Based on INR P2P data collected from leading offshore exchanges, we estimate that over INR 3,50,000 crore was traded by Indians on offshore platforms since the 1% TDS was introduced in July 2023 – the figure amounts to over 90% of total VDAs traded by Indians.
Only 0.2% of trading (by value) on offshore VDA exchanges, on which TDS should be deducted, is TDS compliant. Esya confirmed that its estimate does not include private transactions or larger over-the-counter (OTC) trades.
The organization also recommended clarity regarding the scope of TDS on offshore platforms and empowering a government entity to blacklist and obstruct offshore Virtual Asset Service Providers (VASPs) and specific VDAs associated with non-compliant platforms.
Urgency for Easing Crypto Tax Rules in India
Various players in the crypto space in India are urging a reduction in the tax burden on crypto transactions. Indian crypto exchanges have resorted to measures to prolong their financial viability until they secure additional funding amidst the crypto drawdown and uncertainty in the domestic trading platforms.
India has confirmed active discussions on a regulatory framework, and the taxation talk appears to be a deferred topic.
### News source: cryptopotato.com