Money & Banking

Crypto exchanges worried about impact of tax provisions on investor sentiment

Surabhi | | Updated on: Mar 27, 2022

‘Some investors may move to a non-KYC-compliant exchange’

Cryptocurrency players and investors remain concerned about the new tax provisions, set to kick in from the new fiscal year, with many worried that it would cripple trading and impact investor interest in the country.

“The 1 per cent TDS is a little bothersome, as it would hurt short-term traders and their capital may be locked for up to 18 months. We are waiting to see how it plays out when it kicks in from July 1,” said Sathvik Vishwanath, co founder and CEO, Unocoin.

Sale of crypto assets

Some investors are thinking of selling their crypto investments before April 1 to avoid the tax burden, while there are also concerns that some investors may move to non-KYC compliance exchanges to avoid taxes.

“The proposed 30 per cent tax irrespective of whether crypto-assets are capital assets or not will be detrimental to the investor growth that the industry has been seeing so far. This move will make day-traders incapable of saving on taxes, even if they aren’t in the income tax brackets currently. Furthermore, not allowing investors to offset losses from one crypto trading pair by gains from another type, will further deter crypto participation and throttle the industry growth,” said Nischal Shetty, Founder and CEO, WazirX.

“It can result in cascading participation on Indian exchanges that adhere to the KYC norms and lead to a rise in capital outflow to foreign exchanges or to the ones that aren’t KYC-compliant. This is not conducive for the government or the crypto ecosystem of India,” he said.

The Lok Sabha had, on March 25, passed the Finance Bill 2022, which has introduced a new scheme for taxation of virtual digital assets.

“Faced with the higher tax burden, at least some investors will look to move to a non-KYC-compliant exchange. The new tax proposals will definitely kill investor interest. A more balanced view would have helped the industry,” said a crypto industry expert, who did not wish to be named.

Social media-platforms, too, have registered a number of crypto enthusiasts worried about the new tax regime, with many hoping that the government will review it once it comes out with cryptocurrency regulations as the high tax would kill the segment.

“A deeper look at the Finance Bill demonstrates the government’s reluctance to encourage growth in this space,” said Probir Roy Chowdhury, Partner, J Sagar Associates, noting that the biggest setback to the Indian cryptocurrency industry is the Finance Bill’s prohibition of setting off losses in one cryptocurrency against gains from another.

“Crypto players need to present a united front and challenge these overbearing provisions. Trading in crypto and virtual digital assets in not akin to gambling and this distinction needs to be made clear,” said Roy.  

Published on March 27, 2022
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