India’s 1% TDS on Crypto Transfers Yields $19 Million in 9 Months

Indi­an tax author­i­ties col­lect­ed Rs 158 crore (approx. $19 mil­lion) in TDS on the trans­fer of vir­tu­al dig­i­tal assets (VDA) till March 20, Min­is­ter of State for Finance Pankaj Chaud­hary told the Par­lia­ment on Tuesday. 

Giv­en that the finan­cial year end­ed on March 31, it can be tak­en as the final fig­ure for the entire 2022–23 fiscal.

1% TDS at $125 Threshold 

The Indi­an gov­ern­ment brought cryp­to trans­ac­tions under a new tax regime through the bud­get for 2022–23. It pro­vid­ed for 1% TDS on VDA trans­fers exceed­ing Rs 10,000 (approx. $125) in a finan­cial year. Besides, all gains on VDA trans­fers were sub­ject­ed to a 30% income tax. 

The 1% TDS began to be 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, it was expect­ed that the gov­ern­ment would ease the tax rate and bring it between 0.05% and 0.1%, in line with the industry’s demand. But the author­i­ties did not pro­vide any such relief. 

Regulatory Vacuum 

Sub­se­quent­ly, cryp­to trans­ac­tions were placed under the Pre­ven­tion of Mon­ey Laun­der­ing Act (PMLA). Indus­try rep­re­sen­ta­tives sur­pris­ing­ly hailed the deci­sion as it pro­vid­ed some kind 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 neigh­bor­ing and more friend­ly juris­dic­tions such as UAE and Singapore. 

As per a Nass­com study, 60% of India’s 450 Web 3 star­tups are reg­is­tered out­side the coun­try. The report also high­light­ed that India is well set to dri­ve the Web 3 trans­for­ma­tion thanks to its large tal­ent pool, which accounts for 11% of the glob­al market. 

Crypto Adoption Growing 

As per the lat­est Sta­tista data, India has 150 mil­lion cryp­to users. By the end of 2023, India’s cryp­to adop­tion rate could become high­er than that of the UK and the US, and 11% of locals will have exper­i­ment­ed with dig­i­tal asset transactions. 

India host­ed G20 Finance Min­is­ter and Cen­tral Bank Gov­er­nors meet­ing last month, where dis­cus­sion on cryp­to reg­u­la­tions fig­ured promi­nent­ly. And it seems by the end of 2023, the pow­er­ful eco­nom­ic block will have some kind of reg­u­la­tion in place for the cryp­tocur­ren­cy sector.