CoinDCX CEO clarifies India’s crypto tax regulations and their impact
Sumit
Gupta,
co-founder
and
CEO
of
Indian
crypto
exchange
CoinDCX,
recently
spoke
with
crypto.news
in
an
exclusive
interview,
discussing
how
India’s
crypto
tax
policies
have
impacted
the
industry.
The
introduction
of
taxes
for
cryptocurrencies
in
the
2022
Union
Budget
was
a
watershed
moment
for
the
crypto
economy
in
India.
Under
section
2(47A)
of
the
Income-tax
Act
1961,
digital
currencies
were
labeled
as
virtual
digital
assets
(VDA).
A
sector
that
was
once
mired
in
ambiguity
was
injected
with
a
sense
of
legitimacy
and
delineated
towards
a
clear
regulatory
path.
However,
the
regulatory
clarity
came
alongside
some
burdens
of
its
own.
A
30%
tax
rate,
paired
with
an
additional
1%
TDS
on
transactions,
soon
became
a
deterrent
for
retail
traders.
Trading
volumes
crumbled
and
drove
the
crypto
economy
underground
or
to
more
tax-friendly
shores.
Nevertheless,
industry
experts
like
Gupta
are
all
for
formal
recognition
and
the
structured
environment
of
cryptocurrencies
that
now
exist.
While
it
has
been
more
than
a
year
since
the
introduction
of
this
new
framework,
confusion
and
a
proliferation
of
misconceptions
among
both
new
and
seasoned
investors
remain.
The
everyday
investor
is
still
grappling
with
the
complexities
of
reporting
and
calculating
taxes
on
their
transactions,
particularly
with
respect
to
staking,
mining,
and
the
use
of
crypto
in
everyday
business
transactions.
Gupta
looks
to
clarify
some
of
the
more
complex
aspects
of
cryptocurrency
taxation,
addressing
common
misconceptions
and
providing
a
clearer
understanding
of
the
regulations.
Can
you
explain
the
different
tax
treatments
for
profits
from
trading,
mining,
and
staking
cryptocurrencies
and
how
these
rules
impact
investors?
For
instance,
how
does
the
flat
30%
tax
on
trading
and
mining
compare
to
the
income
tax
slab
rate
applied
to
staking
rewards?
Crypto
trading
and
mining
profits
are
subject
to
a
flat
30%
tax,
with
no
deductions
or
loss
offsets
allowed.
However,
staking
income
is
taxed
based
on
the
individual’s
income
tax
slab,
potentially
offering
a
lower
rate.
The
Web3
sector,
including
CoinDCX,
is
urging
the
government
to
reduce
the
30%
tax
rate
on
Virtual
Digital
Assets
(VDAs)
to
align
with
other
asset
classes,
especially
securities.
The
high
tax
rate
and
disallowance
of
loss
offsets
discourage
entrepreneurship,
innovation,
job
creation,
and
foreign
investment,
potentially
driving
talent
and
capital
abroad.
Adjusting
these
tax
policies
could
foster
growth
and
innovation
within
the
industry.
What
are
the
most
common
misconceptions
about
crypto
taxes
that
you
have
encountered,
and
how
can
investors
avoid
these
pitfalls?
It’s
crucial
to
dispel
the
misconception
that
all
crypto
activities
are
taxed
at
a
flat
30%
or
that
staking
rewards
are
only
taxable
upon
sale.
Staking
rewards
are
taxable
at
receipt,
based
on
market
value.
Additionally,
trading
losses
cannot
offset
other
income
types.
Investors
should
maintain
detailed
records
and
seek
professional
tax
advice
for
effective
navigation
and
compliance.
CoinDCX
has
partnered
with
KoinX
to
help
users
file
crypto
taxes.
This
platform
allows
users
to
track
tax
computations,
connect
multiple
exchanges
and
wallets,
and
view
real-time
tax
amounts
for
all
crypto
transactions,
including
NFTs
and
DeFi
investments.
How
do
you
foresee
the
potential
changes
in
global
cryptocurrency
regulations,
particularly
those
discussed
in
G20
meetings,
influencing
India’s
stance
on
both
general
crypto
regulations
and
taxation?
The
G20
discussions,
especially
those
held
in
India,
provided
a
robust
platform
for
shaping
global
crypto
regulations.
Such
wide-ranging
consultations
are
crucial
for
developing
comprehensive
frameworks
that
can
be
adapted
by
individual
countries.
For
India,
these
discussions
offer
a
template
for
regulatory
clarity,
ensuring
a
balanced
approach
that
benefits
all
stakeholders.
The
inclusion
of
Virtual
Digital
Asset
(VDA)
transactions
under
the
Prevention
of
Money
Laundering
Act
(PMLA)
is
an
example
of
such
regulatory
clarity,
allowing
policymakers
to
oversee
the
crypto
space
and
discourage
illicit
activities
effectively.
Building
on
that,
how
has
the
inclusion
of
cryptocurrency
transactions
under
the
Prevention
of
Money
Laundering
Act
(PMLA)
affected
the
crypto
industry’s
compliance
and
operational
practices
in
India?
The
inclusion
of
VDA
transactions
has
been
a
win-win
situation
as
it
gives
policymakers
a
platform
for
oversight
and
discourages
illicit
actors.
This
regulation
necessitates
strict
adherence
to
KYC
(Know
Your
Customer)
and
AML
(Anti-Money
Laundering)
procedures,
leading
to
enhanced
transparency
and
reduced
risk
of
illicit
activities.
The
Bharat
Web3
Association
released
a
case
study
detailing
the
implementation
of
these
regulations,
showcasing
the
industry’s
active
support
and
the
pivotal
role
played
by
the
Financial
Intelligence
Unit
(FIU)
of
India.
Given
these
regulatory
changes,
what
are
the
specific
challenges
faced
by
high-frequency
traders
in
India
due
to
the
1%
Tax
Deducted
at
Source
(TDS)
rule,
and
what
strategies
can
be
employed
to
mitigate
these
issues?
The
1%
TDS
rule
poses
significant
challenges
for
traders
in
India,
primarily
by
reducing
liquidity
and
pushing
users
towards
offshore
exchanges
that
do
not
deduct
TDS.
This
has
led
to
a
massive
shift
of
more
than
95%
of
trading
volumes
to
exchanges
outside
India,
adversely
affecting
domestic
players.
To
mitigate
these
issues,
the
industry
is
advocating
for
a
reduction
of
TDS
to
0.01%,
which
would
help
maintain
government
oversight
while
keeping
the
market
attractive
for
investors.
It
also
reduced
the
liquidity
for
high-frequency
traders
by
a
big
margin.
However,
because
of
CoinDCX’s
product
and
reputation
for
compliant
business,
we
have
seen
some
positive
movements
and
users
returning
to
us
since
the
FIU-India
blocked
non-compliant
offshore
exchange.
But,
a
large
chunk
of
migrated
users
still
remains
with
non-compliant
exchanges
and
face
exposure
to
illicit
actors.
Do
you
think
there
is
a
chance
that
the
government
might
reduce
the
tax
burden
on
crypto?
The
industry
has
been
advocating
for
a
reduction
of
TDS
to
0.01%,
which
would
maintain
the
government’s
objective
of
tracking
financial
flows
while
making
the
market
more
attractive
for
investors.
We
are
hopeful
that
the
government
will
consider
this
request
of
reducing
the
tax
burden
on
crypto
transactions,
particularly
the
TDS
rate,
to
foster
a
more
conducive
environment
for
innovation
and
investment.
Lastly,
if
it
were
up
to
you,
what
approach
would
you
take
to
balance
innovation
while
ensuring
compliance?
Balancing
innovation
with
tax
compliance
requires
a
nuanced
approach,
where
regulations
are
clear
and
supportive
of
technological
advancements
while
ensuring
robust
oversight
to
prevent
misuse.
Engaging
with
industry
stakeholders
and
studying
global
best
practices
can
help
create
a
balanced
framework.
We
have
also
released
a
whitepaper
recently,
where
we
have
studied
the
global
&
Indian
economic
literature,
and
it
points
to
the
same
outcome.
Comments are closed.