How the new cryptocurrency rule will affect you. Details here

Starting this month, all your cryptocurrency transactions will be subject to a 1% TDS. This is in addition to the 30% tax you will have to pay on your income from virtual digital assets (VDAs) such as crypto.

But much like Delhi-based crypto professional and investor Karan, many crypto users still have “no idea or clarity” on how this would affect their finances.

Crypto exchanges are already well on their way to this development, having incorporated the processes needed to collect TDS. However, although they remained skeptical, the general sentiment was one of acceptance, as it gives investors ‘transparency’ and ‘clarity to plan their trades’.

“We believe the government will monitor the implementation and consider reducing the percentage of TDS to create a healthy and compliant ecosystem,” said Vikram Subburaj, CEO of Giottos Crypto Platform.

How will this impact you, the regular crypto trader? Here is a calculator ready to help you understand this development:

HOW WILL THE FT BE IMPLEMENTED?

Simply put, the government will first deduct the applicable tax before you get your final amount of income or sale of assets. But this can get tricky in crypto, where transactions can either be in INR or in terms of other cryptos. So how to proceed? There are two cases.

Transactions in INR
Currently, BTC is trading at $19,032. This means that 1 bitcoin is worth around Rs. 15,02,435.63. But the crypto markets are currently in free fall. Since last year, global crypto markets have wiped out around $2 trillion of investor money. Most investors in the market are fearful and in “let’s dump” mode.

These are tough times to sell. Suppose you sell your BTC, which is worth Rs 15,00,000 for only Rs 12,00,000. Remember that under the new IT rules, you cannot deduct this loss (worth Rs 3,00,000) against any income you generate from other sources.

So, on top of that, a TDS of Rs 12,000 will be deducted from your side. You will receive the remaining amount of Rs 11,88,000.

Crypto to crypto transactions
Suppose you sell 5 ADA for 1 BTC. Here, too, individual conversions can get tricky. Thus, the TDS for the buyer and the seller will be calculated in terms of the main crypto or quote asset. In this case, it is BTC. On the other hand, ADA is the base asset because its value is expressed in terms of the quote asset.

As a seller, you will need to pay 5.05 ADA (1% of 5 ADA) for 1 BTC.
If you buy here, i.e. you buy 1 BTC for 5 ADA, you will only get 0.99 BTC (1% of 1 BTC) for 5 ADA.

SIDE EFFECTS

According to CA Bhavesh Jindal, who works as a senior tax partner at Ludhiana-based Ashwani and Associates, TDS’ move looks hopeless.

“Instead of expanding the net of control over crypto exchanges and the banking system, which is necessary to curb unaccounted crypto transactions, the system is asking assessments to make undue compliances. This is absolutely absurd and against the framework basis of the taxpayer charter. At the same time, it blocks almost 20% of the amount of any crypto barter transaction,” he said.

Amajot Malhotra, Country Head, Bitay, said: “The recent 1% TDS provision on crypto transactions is a modern example of a tax provision that would be very detrimental to the crypto industry.”

But Rajagopal Menon, vice president of WazirX, advises taking a more “wait and watch” approach.

“We will be in a better position to understand this by the second week of July. The current market scenario and tax structure has resulted in a record drop in regular crypto trading in the industry. One of the reasons for this could be that investors are turning to holding crypto for a significant period of time instead of selling it. But at present, it is still premature to predict the ramifications of TDS.

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