Crypto Exchanges Want Clarification About TDS Liability When Moving Operations Overseas

Mumbai: Some cryptocurrency exchanges who have moved or are planning to leave India have contacted their tax advisors to determine if they are still required to comply with the 1% TDS regulation.

Many tax experts have said that if an exchange opens an office outside the country, the tax authorities may have trouble collecting the 1% transaction tax.

The government has introduced in this budget a tax of 1% deducted at source or TDS on each transaction, as well as a 30% tax on returns for investors and traders.

Some of the biggest cryptocurrency exchanges including CoinDCX, BuyUCoin, Koinex, Zebpay, Coindelta, CoinRecoiland Coinome have already moved abroad or are in the process of doing so.

Industry trackers point out that if exchanges can comply with TDS, they must create technology from scratch that could further squeeze their margins.

Moreover, such technological development does not work in their favor because TDS makes market creation economically infeasible, insiders say.

“Exchanges are not finding economic TDS compliance because they have to develop technology to perform the calculations millions of times and it eats away at their very thin margins,” said Gaurav Mehta, founder of Catax, a crypto tax consultancy. -cash.

However, legal experts point out that despite the tax authorities’ apparent inability to implement the law in the absence of data, exchanges themselves may find it difficult to move forward.

“Moving the exchanges out of India may not exempt the exchanges from the TDS regulations because in that case the DTAA (Double Taxation Avoidance Agreement) that India has in place with that country will come into effect. force with FEMA regulations. Further, like any other foreign exchange transaction where Indians are the consumers or users, Special Economic Presence (SEP) and trade relations regulations could also come into play,” said Ankita Singh, Partner at the law firm. A&P Partners.

claim that they are working on a system to comply with the TDS.

“We are working on the implementation and practicality of the 1% TDS scheme,” said Shivam Thakral, CEO of BuyUcoin, a cryptocurrency exchange looking to move overseas.

The tax authorities can still request the tax from traders and users. But with no data shared by exchanges on transactions and with millions of transactions to review, this can be next to impossible.

CoinDCX, Zebpay, and UnoCoin did not respond to ET’s request for comment.

“The exchanges are unlikely to share data on all transactions with the tax authorities in India,” said a person advising one of the exchanges.

“In practice, if exchanges decide not to comply with the TDS, there is little the tax department can do. Moreover, the tax department may not even know how to prosecute merchants until they adopt the technology to combat technological problems,” Catax’s Mehta said. .

In order for the tax department to determine the 1% TDS, it may need information on all transactions, which is currently only held by exchanges.

“There is currently no clarity as to how these regulations can be enforced by the Revenue Service, particularly if the exchanges are operating from a country where India does not have a DTAA. Whether they will even be allowed to continue their operations here is in question, which can only be resolved when such situations come into play and are reviewed by tax authorities and the judiciary. The universe of crypto regulation is changing. We will see these issues resolved in due course,” said Singh of A&P Partners.


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Crypto Exchanges Want Clarification About TDS Liability When Moving Operations Overseas

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