Cryptocurrency exchanges want clarity on TDS’s liability if they move operations overseas

Bombay: Some cryptocurrency exchanges who have moved or are looking to relocate from India have contacted their tax advisors to find out 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 taxman may have difficulty collecting the 1% transaction tax.

The government in this budget has introduced a
1% tax deducted at source or TDS on each transaction, together with aa
Tax of 30% on investor and trader returns.

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

Industry trackers point out that while exchanges may comply with TDS, they must build technology from the ground up that could dent their margins further.

Furthermore, such technological development does not work in their favor as TDS makes market making economically impossible, insiders say.

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“Exchanges fail to meet economic TDS compliance as they have to build the technology to perform the calculations millions of times and it eats into their paper-thin margins,” said Gaurav Mehta, founder of Catax, a cryptocurrency tax advisory firm.

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

“Moving foreign exchange out of India may not complete the TDS regulation exchanges as in that case the DTAA (Double Tax Avoidance Agreement) that India has with that country will come into effect alongside the FEMA regulations. , like any other foreign exchange transaction where Indians are the consumers or users, the special economic presence (SEP) and trade link regulations could come into play, “said Ankita Singh, partner of A&P Partners law firm.

claim to work on a TDS compliant system.

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

The taxman can still demand the tax from traders and users. But in the absence of shared data from exchanges on transactions and with millions of transactions to track, this could be next to impossible.

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

“Exchanges are unlikely to share data on all transactions with 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 not much that the taxman can do. Furthermore, the taxman may not even know how to prosecute traders until they adopt the technology to combat the technological problems,” he said. stated Mehta of Catax.

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

“There is currently no clarity on how these regulations can be enforced by the tax department, especially if the exchanges operate from a country where India does not have DTAA. It is questionable whether they will also be able to continue operations here, which it can only be addressed when such situations come into play and are considered by tax authorities and the judiciary. The universe of cryptocurrency regulation is evolving. We will see these issues addressed in due course, “said Singh of A&P Partners.

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