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Six months on, crypto tax leading to siphoning of India's wealth: Experts

The crypto industry is largely unregulated in India, and the central government, along with the Reserve Bank of India (RBI), have repeatedly refused to make cryptocurrencies legal

cryptocurrency | wealth | Blockchain

Raghav Aggarwal  |  New Delhi 

Crypto investors

The provision of a 30 per cent on the transfer of has facilitated the siphoning of India's to foreign countries, experts told Business Standard. October 1 will mark six months of the rule's implementation, which finance minister introduced in her Budget 2022 announcement.

"Since the imposition of taxes, India has seen a significant decline in trading volume and an exodus of crypto investors to international exchanges based on the belief that these exchanges do not cooperate with Indian authorities, thereby allowing individuals to save 30 per cent in taxes," Gaurav Mehta, founder of auditing and taxation startup Catax said.

Apart from a 30 per cent tax, the government also introduced a 1 per cent deducted at source (TDS) on each trade where a crypto asset is exchanged for the rupee or another crypto asset. It came into effect on July 1.

"The 1 per cent levied on top of the 30 per cent on gains from the transfer of crypto assets, is steeper than the taxation policy of most developed countries like the US and UK," Sumit Gupta, co-founder and CEO at crypto investment platform CoinDCX said.

"While we have been deducting the taxes as per government regulations, the users see this as a loophole in tax enforcement and are taking advantage of this grey area over whether the law applies to international platforms," Gupta added.

The may be a bigger reason for investors to shift to other markets.

"More than the 30 per cent tax, it is the high that has had an impact on crypto. The high TDS has pushed a lot of traders into the grey markets and potentially decentralised exchanges where it is difficult to trace transactions, let alone tax," a spokesperson of platform CoinSwitch said.

Crypto investors try to escape the taxes by trading on international exchanges. However, it may not be true.

"It is essential to recognise that is a public ledger and that it is possible to collect information about individuals' transfers, taxes, and related activity. It is just a matter of time before the government catches up with technology," Mehta said.

The crypto industry is largely unregulated in India. The central government and the (RBI) have repeatedly refused to legalise .

In a financial stability report released in June, Das wrote that are speculation under a sophisticated name.

"While technology has supported the reach of the financial sector and its benefits must be fully harnessed, its potential to disrupt financial stability has to be guarded against," he wrote in the report's foreword.

In 2018, RBI banned the banking system from lending a hand in trading. The order was, however, struck down by the Supreme Court in 2020.

Mehta said that taxation has resulted in no significant gains for the government.

"No significant benefits have accrued to the government other than a decline in trading volume, which is consistent with the RBI's goal of discouraging crypto investments in India via trading volume and making it a less speculative asset class," he added.

The industry is marred by the lack of clarity around laws and regulations. Experts are increasingly seeking reforms, including bringing TDS on crypto at par with other markets.

"If the TDS were to be at par with say the securities industry, it will help innovation in the crypto sector," CoinSwitch said.

"We urge the government to clarify and bring a level playing field in this matter," Gupta said.

"Hopefully, the government will address it soon with more use cases of crypto coming into the market," Edul Patel, CEO & co-founder of crypto investment platform Mudrex, said.

Patel added that more regulatory clarity would drive even more retail investors into the market.

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First Published: Fri, September 30 2022. 17:37 IST