Indian cryptocurrency exchanges that lost notable share of their trading volumes to global exchanges last year may see users shift back, post the amendments in the Income Tax Act on crypto TDS collection announced in the budget.  

The Finance Bill 2023 has mentioned that the use of offshore or non-compliant platforms to evade TDS may result in a penalty under Section 271C of the Income Tax Act. Furthermore, as per clause 119 of the bill, failing to pay TDS on crypto transactions can result in a seven-year prison sentence.

TDS reduction

As global exchanges don’t take the onus of TDS deduction on transactions, users may get back on Indian exchanges. Ashish Singhal, Co-founder & CEO, CoinSwitch, said, “Users will find it easy to operate via tax-compliant Indian exchanges, otherwise, the onus is on the individual. In that case, the procedure involves technicalities and can be cumbersome if one is not working with a tax advisor or CA.”

Similarly, Sathvik Vishwanath, Co-Founder & CEO of Unocoin, said, “It is possible that Indian users on foreign exchanges may face difficulties due to the lack of TDS deductions by the global exchanges. This could lead to some Indian crypto investors shifting to compliant Indian exchanges.”

The trading volumes of exchanges which have dipped significantly after the taxes kicked in last year, may see some recovery. “Compliance with TDS regulations could have a positive impact on the trading volumes on Indian crypto exchanges, as it could increase the trust of users in the exchange and make it more attractive for them to trade,” added Vishwanath. 

However, the penalisation announced could make some users quit as well. Punit Agarwal-Founder KoinX, said, “It depends on whether investors shift to Indian exchanges or if the aggressive tax regime coupled with severe penalties on TDS would lead to investors leaving the crypto space altogether.”

Going forward, the government will be cracking down heavily on users for non payment of TDS.  Rajagopal Menon, Vice President, WazirX said,  “This provision is intended for traders who were trading in foreign exchanges to avoid TDS provisions. The IT department has already begun using newer technologies to analyse transactions and returns to discover evasion and plug leaks. The long arm of IT will inevitably catch up with traders who are transacting in foreign exchanges and not paying TDS.” 

Effect on Global exchanges 

Mohnish Wadhwa, CEO of a business consulting firm CapDeck Advisors said, “Global exchanges may take a call to not onboard Indian citizens as the onus of TDS compliance will be on them when they pay out any consideration to Indian users.”

“It is difficult to determine the effect of the shift on trading volumes of global crypto exchanges, Indian crypto exchanges will surely get some benefit out of it as people will try to figure out,” said Kashif Raza, Founder of Bitinning.