A high tax incidence will discourage investors. “Compliance needs to be smoothed out. Especially around TDS. There are a lot of flaws in the way VDAs have been defined. must also be considered in due course,” said Archit Gupta, Founder and CEO of Clear.

The beneficiary is now liable for 30% of their tax return, regardless of their level of income. “Although cryptocurrencies are described as assets in the budget, they are managed differently than other assets. The biased behavior with cryptocurrencies in the recent budget could have a serious impact on the industry. People also think that higher taxes will force the industry out of the country. Some even believe that too high a tax can incentivize industry to operate underground and move upcoming innovations overseas,” said Kunal Jagdale, Founder of BitsAir Exchange.

1% TDS worries traders, investors, exchanges and others engaged in this market.

“The main question plaguing exchanges is whether 1% TDS will affect volumes, as it will affect all payments made for transactions of these assets. People are saying that imposing a 1% holdback on the value total trading would make various types of trading impossible including day trading, margin trading, arbitrage trading etc. This can seriously affect order books as well as volumes of crypto on their exchanges and will also cause a illiquid and inefficient crypto market,” said Amit Gupta, MD, SAG Infotech.

Manoj Dalmia, founder and director of the Proaasetz exchange, said that the 1% TDS rate must be lowered to at least the same level as the stock market, to ensure healthy growth of the crypto asset segment.

Possible benefits of crypto tax

Crypto tax laws have given taxpayers some form of certainty about the tax liability they can expect if they sell their crypto holdings.

Archit Gupta said having at least some information on what to expect in terms of taxes will help investors prepare for tax outings.

However, with the view that has been adopted, the authorities have equated these revenues with those from the sale of lotteries, stressing that they are considered purely speculative in nature, he added.

Manoj Dalmia, Founder and Director, Proaasetz Exchange lists some of the benefits of crypto tax

• Crypto Is At Least Not Banned In India (Tax Clarity)
• The government gets a good source of revenue in the form of taxes.
• Investors will speculate less as crypto is a risky asset. Longer term investments can be considered.

Possible disadvantages of the crypto tax

The other big downside is that investors won’t be able to make up for losses. This is not the view that other economies have taken around the world.

“A lot of research and development is going on in blockchain technology and Web3-related work. Several countries are emerging as centers for this type of research and development, so understanding and filling the policy gaps is critical. We hope that this will be supported through the RBI crypto bill, said Archit Gupta, Founder and CEO – Clear.

Manoj Dalmia lists some of the benefits of crypto tax

• The tax rate is unclear as there is a lot of compliance involved in the case of filing TDS.
• People will not be allowed to offset their losses, thereby losing tax benefits.
• Exchanges will lose volumes due to heavy taxation.
• Low volumes and trade due to policies will also reduce trade which in turn will generate low taxation for the government, low revenue for exchanges and lower profits for traders.

Current crypto tax

• 30% flat tax rate on any income from virtual assets
• Crypto gift cards to be taxed on the recipient side
• Compensation will not be allowed for losses.
• 1% would be deducted as TDS on buy and sell transactions involving crypto.

However, countries like the United Arab Emirates and Thailand have reduced their tax rates to become more crypto-friendly. “If the tax rate in India is not reduced, the industry could shift to those more crypto-friendly countries. Some experts believe that it does not bode well for the country if the crypto industry starts to leave India,” said Kunal Jagdale, founder of BitsAir Exchange.

Compliances must be framed in such a way that they can be implemented in a simple way, to the benefit of investors, exchanges and the government alike.

Abhishek Soni, CEO and co-founder of Tax2win, said, “Heavy tax can have a negative impact on crypto investing as the tax rate is very high i.e. 30%. Additionally, there is no set-off, no loss carry-forward, and no expense deduction. These elements can affect the volume of investment in crypto. Considering the tax aspect, small investors can turn to mutual funds as the tax rate on mutual funds is lower than that of cryptos in India.”