1% TDS on Crypto: How Does It Impact Crypto Investors In Indian Union Budget 2024? bitcoin news

 1% TDS on Crypto: How Does It Impact
 Crypto Investors In Indian Union Budget 2024?

In the Union Budget of 2022, the Indian Government introduced fresh tax measures pertaining to the utilization of virtual digital assets or cryptocurrencies within the country. In June 2022, the Central Board of Direct Taxes (CBDT) issued a circular containing several guidelines that outline the taxation regulations for digital currencies. The "1% TDS on crypto" refers to the tax deduction of 1% at the time of conducting transactions involving cryptocurrencies.

In this article, we will provide comprehensive information about the 1% TDS on crypto in India. Additionally, we will examine the potential consequences it may have for Indian crypto investors.

 What Exactly is TDS?

When an individual is required to make a specific payment to another individual, they are obligated to deduct tax at the source, known as TDS or "Tax Deducted at Source." The deducted amount is then remitted directly to the Central Government. The deductee, from whom the 1% TDS is deducted, is eligible to receive a credit for this amount based on Form 26AS or a TDS certificate.

What is 1% TDS on Crypto?

The Central Board of Direct Taxes has introduced tax policies and outlined the process of tax deduction at source (TDS) for transfers involving virtual digital assets and cryptocurrencies.

As previously explained, TDS refers to the tax amount deducted at the source during a transaction. In 2022, the Indian Government announced that a 1% TDS would be applicable to all transactions involving virtual digital assets (VDAs). This applies specifically to transfers between individuals or purchases, while exempting transfers between wallets owned by the same individual.

To elaborate, when you buy or sell a cryptocurrency, the exchange facilitating the transaction is required to deduct 1% of the transaction value as TDS, which is subsequently remitted to the central government of India. According to the guidelines, this rule is applicable to transactions exceeding Rs. 10,000.

What Do You Need To Do For TDS Deduction?

As a buyer or seller using a cryptocurrency exchange, you don't need to take any action regarding TDS (Tax Deducted at Source). The exchange itself will deduct the required tax amount based on the guidelines provided by the Central Board of Direct Taxes (CBDT) under Section 194S. The exchange will also provide you with periodic TDS statements.

When it comes to TDS, it doesn't matter whether you make a profit or a loss on your trades. The tax will be levied on the total amount sold, known as the "final sale amount," irrespective of whether you experience a profit or a loss.

How to calculate TDS on your Crypto?

To illustrate the calculation of TDS, let's consider an example. Suppose you sold Rs. 1,000 worth of ETH on a cryptocurrency exchange. In this scenario, the 1% TDS would be deducted from the final sale amount of Rs. 1,000, regardless of whether you made a profit or a loss. This amounts to approximately Rs. 10. Please note that this example is simplified and does not take into account any exchange fees.

How 1% TDS on Crypto Impacts Crypto Investors?

When the Indian Government introduced the 1% TDS on crypto, it provided justification by stating that the tax would be refunded in the future. Additionally, the government highlighted the need to record all crypto transactions and prevent tax evasion and illegal activities, as they believe that crypto investments are often used to evade taxes in the long run.

Regarding its impact on investors in India, the financial burden is not particularly significant. The main effect of the 1% TDS on crypto is primarily related to compliance. Unlike before the implementation of this regulation, investors now need to keep records of every transaction they make.

However, the combination of this regulation with the 30% tax on crypto earnings has added complexity to the crypto space. Investors who were considering exploring the crypto industry with small investments have become hesitant following the tax policy announcements by the Indian Government.

The upcoming Union Budget in 2024 may introduce changes to the current tax policies concerning virtual digital assets. However, since it is an interim budget before the elections, it is uncertain whether cryptocurrencies will be addressed or if new changes to existing policies will be implemented. Nevertheless, even slight modifications to the crypto market's policies can have a significant impact on the industry in India.