TDS on cryptocurrencies to drive volumes off the cliff: Nithin Kamath

Nithin Kamath, CEO and co-founder at Zerodha, says with tax deduction at source (TDS) at 1 per cent being implemented from July 1, crypto volumes in India will drop off the cliff.

In a series of tweets, Kamath compared 1 per cent TDS on all crypto trades to tax collected at source (TCS) of 0.1 per cent on gold. “I assumed that the TDS is only on the gains,” he said.

According to the provisions of this year’s finance bill, the buyer of a cryptocurrency has to deduct 1 per cent of the sale consideration and pay the amount as an advance tax to the government on behalf of the seller on every trade.

The withholding will apply where sale consideration is more than or equal to Rs 50,000 (for specific individual payers) and Rs 10,000 for others. TDS must be deducted on both crypto-to-rupee and crypto-to-crypto swaps.

A 1 per cent TDS means 1 per cent of every trade value is blocked by the platform, Kamath said.

“So in 50 trades, 50 per cent of the account value can be blocked for TDS regardless of the P&L. Volumes are bound to drop and spreads can widen significantly. This will end up creating a snowball effect,” he said.

“Of course, if there are no profits, TDS will be refunded once the income tax returns are filed. But traders would need to declare crypto income,” said he.

With all the crypto celebration post-budget, it reminds me of the saying, “Saanp bhi Mar jaye aur lathi bhi na toote”.

Moreover, day traders make multiple trades per day, often with small margins. Therefore, the volume of the TDS payouts could be substantial and also considerable time would need to be devoted to this exercise.

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