In its budget session this year, India's Finance Minister proposed a 30% tax on any gains from cryptocurrency transactions and a 1% Tax Deducted at Source (TDS) on all transactions. The tax moment was seen as a relief for the industry that was worried about a ban and new user sign-ups jumped as a result. However, Bitcoin's lackluster performance YTD and high taxation are now acting as a headwind for the industry.
The headwind is surely affecting new user acquisition because all players in India's crypto industry are asking the government to relook its tax proposals Source. The taxation that was proposed in the Budget session in February will become a law during the ongoing session. Crypto players are specifically worried about the 1% TDS being levied on crypto transactions.
While no crypto player has come out to say how much this 1% TDS is impacting new user on-boarding, short-term traders and speculators are probably avoiding the crypto market. 2% of their transaction amount is deducted in TDS and more money probably gets deducted towards payment of exchange trading fees and interest on the leverage they take. This 4% to 5% is probably eating away a lion's share of their profit, making trades unviable.
Exchanges do not benefit from Hodlers. Exchanges need people to trade frequently and if speculators stop trading then the whole exchange business is unviable. The same risk was highlighted by an industry body - IndiaTech.
“If the intent of the proposals was to seek additional revenues from such crypto assets, then the 1% tax on the entire transaction value will render the business unviable, thereby having an impact on government revenues forcing investors and those engaging in trade to operate overseas or be forced to resort to operating through opaque P2P methods,” IndiaTech, an industry association representing consumer Internet startups, wrote in the letter, a copy of which ET has seen.
While the industry body is highlighting multiple concerns about the TDS being levied, it is quite obvious why they are not worried about capital gains. TDS is ruining their business badly and probably also forcing them to lose customers that quickly signed up after the taxation was proposed implying crypto legitimacy.
A Twitter campaign is on with the hashtag ReduceCryptoTax. If you want to support the campaign then please do. However, do not buy into the arguments being given by industry leaders about administrative challenges and innovation taking a hit. This is only about business and exchanges not being able to mint money. As a Hodler, TDS does not impact you one bit. It is just an advance payment of your overall tax outlay. However, for someone looking to make a living through trading, 1% TDS on crypto transactions is forcing him to use his skills to make the government rich but live on government benefits himself.
Posted Using LeoFinance Beta
The rewards earned on this comment will go directly to the person sharing the post on Twitter as long as they are registered with @poshtoken. Sign up at https://hiveposh.com.