Amendments sought by the crypto industry were not adopted.
Indians will begin paying a capital gains tax of 30% on crypto transactions in just one week after Parliament passed a controversial tax proposal on Friday, sparking uproar and disappointment among those in the country’s crypto industry.
In addition to the capital gains tax, Indians buying or selling crypto will have to pay a 1% tax deducted at source (TDS), as well as taxes on crypto gifts, with no ability to take deductions for losses. The crypto taxes will come into effect on April 1, while the TDS will start on July 1.
What the government said
Finance Minister Nirmala Sitharaman introduced the proposal and steered it through the lower house of Parliament. While the upper house can and did make suggestions, its role in finance legislation in India is minimal.
More than 20 members of the lower house of Parliament reacted strongly to the bill, criticizing the lack of clarity in defining crypto in the bill, with several members of Parliament saying that the crypto taxes will “finish the industry.”
Sitharaman responded by saying that “there is no confusing signal” and we “have been very clear that consultations are going on as to whether we want to regulate it to some extent or really very much or totally ban it.” She said that the government is taxing crypto because people are profiting from it.
She added that the TDS is “more for tracking, it is not an additional or new tax” and that “TDS can always be reconciled with the total tax to be paid to the government.”
India’s crypto industry was overwhelming in its response, calling the passing of the bill without favorable amendments “more harmful than good” and “one that will hamper the overall growth of the industry.”
“This is not conducive for the government or the crypto ecosystem of India, it is poised to do more harm than good,” said Nischal Shetty, one of the most prominent crypto voices in India and co-founder and CEO of WazirX, one of India’s largest crypto exchanges.
“This can result in cascading participation on Indian exchanges and lead to a rise in capital outflow to foreign exchanges,” Shetty said.
Earlier, Sumit Gupta, CEO of CoinDCX, a prominent exchange in India, said that the “tax provisions can kill the crypto industry,” and Sathvik Vishwanath, co-founder and CEO of Unocoin, another crypto exchange, said that “it was sad none of their (the industry’s) requests had been implemented.”
“This will have some repercussions on traders, especially the 1% TDS assessment. This will not only affect traders but also tax collections. We hope that in the subsequent years the crypto industry gets treated like other investment-related industries,” Vishwanath said.
The reaction was no different among NFT (non-fungible token) marketplaces.
“Witnessing no amendments in the crypto taxation policies have discouraged firms and investors from investing in the volatile market. This will hamper the overall growth of the sector by reducing mass adoption and its validation,” said Abhay Aggarwal, CEO and founder of NFT marketplace Colexion.
Global exchange OKX (previously OKEx) was the rare entity that saw the bright side in the passage of the bill.
“A tax on certain assets indicates that those assets are recognized tradable asset class by the regulator. That gives the industry a lot more clarity on the legal status of crypto and its derived income. Hence it’s good news for the industry in India with respect to building a more regulated operating environment for crypto,” said Lennix Lai, director of OKX.
Shivam Thakral, CEO of Indian exchange BuyUcoin, was also optimistic, saying “the government did best to their knowledge.” He noted that the government tends to move slowly but that it will understand the crypto industry better once it sees trading volumes on crypto exchanges drop.
Supreme Court challenge next?
Rajat Mittal, a tax counsel in India’s Supreme Court advising crypto businesses, also weighed in against the new law.
“The government has not accepted any suggestions of the crypto industry to tone down the crypto taxation but has in fact tightened the taxation rules making it tougher and perhaps, almost impossible for daily traders and the exchanges to conduct activities in India,” he said.
The crypto industry had fought against this bill after the taxes were first proposed in February, supplementing meetings with lawmakers with a change.org petition and an online campaign. There was some hope the capital gains tax or TDS might be eased, but that didn’t happen.
CoinDesk previously reported that the industry had discussed a Supreme Court challenge if crypto taxes weren’t reduced. It is unlikely that the industry will move forward with such a challenge immediately but still is considering that option.
“If such an option exists, it is the last nuclear approach,” WazirX’s Shetty said.
Most in the industry including Shetty have been pushing to discuss the taxes with the government and the law seems to have moved the needle toward a court challenge only marginally.
BuyUCoin’s Thakral said “collaborating is much better than fighting” and suggested that the government will see the impact of the taxes and make changes soon. The option of approaching the top court is not needed until to at least July 1, and by that time, he hopes the industry would have intensified its efforts to reduce the TDS.
“That is something we are careful about. The Supreme Court won’t consider petitions against high taxes by the government on a particular category of asset. Regardless, all the key players including us in the crypto industry have already come together to take constructive steps,” Aggarwal of Colexion said.
BY: Amitoj Singh
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