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Arbitrage seekers and traders in the crypto market execute 10-20 trades per day, which can be as high as 1,000 per year, to profit from small price swings in crypto assets. Naimish Sanghvi, founder of Coin Crunch India, believes that the TDS on every trade will have a big impact on day traders. “The government has very cleverly created a web, in which the crypto industry will be stifled. With the current regulations, I think the market will be dead in no time,” he said.
Darshan Bathija, CEO and co-founder of Vauld, a cryptocurrency exchange and lending startup, believes that levying a TDS on transfers and payments will hurt active traders, as it reduces their capital with each transaction. Crypto experts estimate that due to the 1% TDS on each trade, if a trader starts with an amount of ₹1 lakh, he will exit capital by around 300th trade if there is no loss or profit made on each transaction. “Investors would have to make a big profit on every trade for the trade to make sense, which is unrealistic,” Sanghvi said.
As an exemption, the provisions of the TDS will not apply if the consideration to be paid is less than ₹50,000 by individuals or Hindu Undivided Families (HUFs) who have no business income or whose total turnover or gross receipts do not exceed ₹1 crore. in the case of a business and ₹50 lakh in the case of a profession in the financial year preceding the year in which such asset is transferred.
“In the case of anyone other than the above, said limit is proposed at ₹10,000 during the fiscal year. These TDS provisions are expected to come into effect on July 1, 2022,” said Amit Maheshwari, Tax Partner at AKM Global, a tax and advisory firm.
Bathija and Sanghvi fear that these budget proposals will cause reduced liquidity and volatile short-term movements in crypto assets. Apart from the business perspective, crypto experts also believe that a 30% tax and no provision for loss compensation as well as deferral will impact retail investors. “Any expense (other than purchase cost) or compensation for any loss in computing income in the event of a transfer of such an asset would be disallowed, which is another concern from crypto investors. Plus, carry-forward of those losses is also not allowed. Even cryptocurrency gifts would be taxed,” Maheshwari said. Also, even if you fall into a bracket where you are not required to pay taxes, you will end up paying taxes on crypto income.
Ajeet Khurana, crypto advisor and investor, believes that after the recognition of the budget, a large amount of new money from companies, high net worth individuals (HNI), family offices, etc., who really wanted to invest, will arrive on the market.
Kashif Raza, founder of crypto education platform Bitinning, believes that the government has imposed equivalent taxation on gambling, the fantasy sports industry or the lottery. “The government probably wants people to get discouraged to get into the crypto industry. So today, if investors want to invest ₹10,000, they will think twice and might opt for stocks now,” Raza said. While there is a consensus within the crypto community that the tax proposals are restrictive, they also agree that the proposals have given VDAs some credibility.
Sandeep Jethwani, co-founder of dezerv, a wealth tech company, says family offices and HNIs aren’t rushing into crypto yet because they aren’t fully convinced the asset class is legal for the moment. “Even with full legality, there will be some early adopters of crypto, and over time with significant flows to come, more family offices and HNIs will come to market.”
However, according to investment advisers, some people are already looking to take money off the table. “Traders look for price movements of 1-2% to make profits. If there is a 30% tax, TDS and you cannot make up the losses, it reduces the attractiveness of trading crypto,” said Amit Kumar Gupta, a New Delhi-based portfolio manager at Adroit. Financial Services Pvt. Ltd, a portfolio management company registered with Sebi.
He fears that the 30% tax provision on crypto gains in the 2022 budget will also be implemented retrospectively, further damaging the appeal of crypto.
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