• Notification Date: 16-11-2023
• Notification No: N/A

Govt’s 1% TDS on Crypto Transactions caused Rs 3,500 Revenue Loss

The central government lost nearly Rs 3,500 crore in potential tax revenues from crypto transactions from 1 July 2022 to 2 October 2023, according to a new report by Esya Centre, a not-for-profit policy think tank. This amount could rise to Rs 10,000 crore in the next two years, it further added. 

The report published on Thursday, attributed this loss to the government’s 2022 decision to impose a 1 percent tax deducted at source (TDS) on transactions of virtual digital assets (VDA), which pushed millions of users to shift to using offshore platforms for their cryptocurrency transactions. 

The 1 percent TDS on VDA transfers was introduced in July 2022, along with a 30 percent capital gains tax on the profits earned from trades from 1 April 2022. 

“We estimate that Rs 3,493 crore in TDS on VDA transactions went uncollected, representing a lost opportunity for the treasury that is 13.6 times the pool of TDS collected,” said the report. According to government data, approximately Rs 257.6 crore was collected as TDS between 1 July 2022, and 1 October 2023, the report added. 

It analysed the impact of the government’s July 2022 decision on trading in crypto assets (referred to as virtual digital assets in the Income-tax Act, 1961). According to the report, while the move seems intended to discourage speculative activity and increase traceability in the VDA ecosystem, its analysis suggested that these goals remain unmet.  

It recommended that the government needed to clarify the applicability of TDS to offshore platforms. It further suggested lowering the TDS to 0.01 percent or implementing an alternative reporting mechanism, such as the submission of an annual information report, to fulfil the purpose of data collection.  

“Together with obligations of the Prevention of Money Laundering Act, 2002, this will give regulators sufficient insight into fund flows in the Indian VDA ecosystem,” it added.