CoinDCX Report Claims Lower Crypto TDS Can Improve Tax Compliance & Transparency

CoinDCX has released a report that attempts to highlight issues with India’s crypto tax policies while seeking reforms from the government to improve compliance and tax transparency in the country. The FIU-registered crypto exchange is the latest of many firms that have tried to urge the government to reduce taxes on cryptocurrencies in the country – including a one percent tax deducted at source (TDS) on crypto transactions and a 30 percent levy on crypto-generated income activities.

In his report titled ‘Redesigning TDS for Transparency and Compliance’, the Indian crypto firm argued that the one percent TDS on all crypto transactions was originally intended as a transparency and compliance tool, but its application was not in line with the nature of digital asset markets, which means losses for players and industry participants.

“Much of the contemporary economic literature suggests that the marginal tax rate is inversely related to reported income and positively correlated with evasion, as observed in the imposition of one percent TDS on VDAs in India,” the firm’s report said.

According to CoinDCX’s latest report, a study of the crypto tax regime in India revealed that individuals who evaded taxes in the past may have done so due to the higher marginal tax rate. The firm also claimed that one percent TDS has led to a 90 percent drop in trading volumes, which would have resulted in a drop in income for investors.

This is not the first time that crypto firms and related organizations have asked the government to reduce taxes on crypto transactions in India. Earlier this year, social media posts called for a reduction in the 30 percent tax levied on income generated from crypto activities and a reduction in the TDS rate from one percent to 0.01 percent.

These demands were made before Finance Minister Nirmala Sitharaman announced this year’s interim budget, which did not introduce any changes to the tax regime of crypto.

The finalized budget will be announced after the current general election, but it is currently unclear whether new changes related to taxes on crypto activities will arrive in the coming months.

CoinDCX and Bharat Web3 Association have urged the government to consider revising crypto TDS.

“To collect revenue, a tax rate of between 0.01 percent and 0.05 percent should be sufficient to collect all the income tax owed by market makers while allowing market makers to maintain competitive spreads.” Alternatively, a scheme that does not provide for withholding tax on transactions such as Annual Information Returns (AIR) can be introduced, which in combination with the Prevention of Money Laundering Act 2002 (PMLA) can provide sufficient supervision,” the company states in its report.

Gadgets360 has reached out to the finance ministry for comment on the report and this article will be updated with a response when received.