With the 1% TDS rule for cryptocurrency transactions coming into effect yesterday (July 1), Indian crypto exchanges have started implementing the same on their platforms. Leading Indian crypto exchange WazirX has also implemented the TDS rule.
“We are complying with the government’s directive on 1% TDS and the updates on our exchange and P2P platforms went live yesterday. The new update will ensure that tax deductions are transparent to keep users informed of taxation throughout the crypto buying experience,” Rajagopal Menon, Vice President at WazirX, told FE Online.
“We are complying with the government’s directive on 1% TDS and the updates on our exchange and P2P platforms went live yesterday. The new update will ensure that tax deductions are transparent to keep users informed of taxation throughout the crypto buying experience,” added.
In a detailed note shared with FE Online, Rajagopal explained how the TDS deductions would take place on WazirX. He said that set processes are in place to collect TDS for relevant transactions.
First, the TDS collected needs to be paid to the Income Tax Department in INR. For this, any TDS collected in the form of Crypto has to be converted to INR.
For ease of conversion and to reduce price slippage, in Crypto to Crypto transactions, the TDS for both sides would be deducted in the quote (or primary) Crypto asset.
WazirX markets have four quote assets- INR, USDT, BTC, and WRX. For example, in the following markets: MATIC-BTC, ETH-BTC, and ADA-BTC, BTC is the quote Crypto asset, and hence the TDS of both the buyer and seller trading in these markets would be deducted in BTC.
TDS on crypto-INR and crypto-crypto exchange: Examples
- 1 BTC traded for 100 INR. BTC seller receives 99 INR (after 1% TDS deduction). BTC buyer receives 1 BTC (no TDS deducted)
- 1 BTC sold for 10 ETH. BTC seller receives 10 ETH by paying 1.01 BTC (after 1% TDS addition). BTC buyer receives 0.99 BTC (after 1% TDS deduction)
- In P2P trades, 1% TDS would be deducted before a USDT sell order is placed. Therefore, no TDS has to be paid by the P2P USDT buyer.
- Seller places an order for selling 100 USDT. Post 1% TDS deduction, a sell order would be placed for 99 USDT. The buyer would pay for 99 USDT, and the corresponding INR would be transferred to the seller’s bank account by the buyer
- If the entire 99 USDT is not successfully sold, 1% TDS would be deducted only in proportion to the amount sold, and the remaining of the 1 USDT locked for TDS would be released back to the seller on order cancellation
Rajagopal said that at present, it is still premature to predict the ramifications of TDS.
“We will be in a better position to understand this by the second week of July. Our focus is more on adhering to the new taxes rules and meeting the required standards that are being set. There has been a fall in trading across the industry as investors shift to hold and there may be another dip as traders see their capital getting locked while trading on KYC-compliant Indian exchanges,” he said.
(Cryptos and other virtual digital assets are unregulated in India. They are considered extremely risky for investment. Please consult your financial advisor before making any investment decision)