Crypto tax: Even coins brought to Indian exchanges for sale in India will attract additional tax

Several Indian crypto exchanges that get a supply of cryptocurrencies from outside India to be sold domestically are all set to see their tax outgo jump on such transactions due to the new law.

Going ahead even when cryptocurrenceis are brought on the Indian exchange, it will face the 1% tax deducted at source or TDS.

The way crypo trade works in India is exchanges including WazirX, CoinDCX and Coinswitch Kuber match trades between the buyers and the sellers.



However, most of the supply of large cryptocurrencies such as Bitcoin and Ethereum sit outside India, who merely come on these exchanges to sell these assets.

“The way the government has defined the TDS, all transactions will be taxed at 1%. This definition will also cover the transactions when exchanges allow sellers or buy their crypto assets to be sold to the buyer,” said Gaurav Mehta, founder, Catax, a cryptocurrency tax consultancy firm.

The finance minister last week introduced a 30% income tax on returns from digital currencies.

The government also introduced a 1% TDS, on digital assets. The government has however not used the word “cryptocurrency” in the guidelines announced in the budget but virtual digital assets.

ET had first written on December 4 that the government was looking to add cryptocurrencies to tax law. “The government is looking to amend current income tax and disclosure norms in the upcoming budget to include terms such as cryptocurrency,” ET wrote on December 4.

The government had also sought opinion from senior tax advisors on whether the income earned from trading or investing in cryptocurrencies could be treated as business income as against capital gains from this year onwards, ET also wrote on January 20

This tax will apply on every transaction and with no clarity on how exactly to pass it on to their buyers in India; exchanges will have to absorb it, impacting their profitability. Most exchanges get cryptocurrency from outside as India doesn’t do any mining for coins such as Bitcoin or Ethereum.

Many exchanges are waiting for more clarity on the TDS.

“At present, we’re only operating in India with our fiat currency (INR). We don’t have any buy/sell or traders outside of India. The 1% TDS proposal by the Finance Ministry will need more clarity going forward as to the nature of taxation events.

We’ll be able to comment on this once we’ll have ample amount of clarity from Indian policymakers,” said Shivam Thakral, CEO, BuyUcoin, a cryptocurrency exchange.

The cryptocurrency tax is creating several complications for exchanges and even the buyers, say industry trackers.

The newly introduced law aimed at taxing cryptocurrencies is all set to impact reward points and other in-app purchases offered by social media companies, dating and gaming apps, say tax experts, ET wrote on Friday.

Going ahead, social media giants such as Meta or dating apps like Gleeden or even gaming apps could face a 1% tax deducted at source as these would be covered under the government’s broad definition of virtual digital assets.