Crypto Exchanges Could Be Penalized For Foriegn Exchange

Crypto exchanges are at a crossroads. At the moment, it is not illegal for an indian citizen to invest in cryptocurrencies or trading system with other currencies like the U.S. dollar. However, cryptocurrency exchanges, including those that trade in altcoins, may be seen as violating federal law.

Latest news about TDS on Crypto

This year, however, cryptocurrencies were not mentioned in the February 1st budget speech. However, some new developments were later discovered in the fine print showing changes in withholding tax (TDS) rules affecting VDAs.

Last year, it was announced that he would impose a 4% tax on crypto trading profits, with a 30% tax and applicable price increases. Also, losses from certain cryptocurrencies cannot be set off against gains from other cryptocurrencies and a TDS of 1% under Section 194S of the Income Tax Act is imposed on crypto transactions above Rs 10,000. increase.

This year, the Finance Act mentioned an amendment to the Income Tax Code under Section 271C that also penalizes non-payment of his TDS for virtual digital assets. This includes fines equivalent to unpaid TDS imposed by the Co-Commissioners, or imprisonment of up to six months. In the event of late payments, this could amount to default interest of 15% per annum.

TDS on Crypto

TDS is India’s direct tax collection mechanism. The Indian Income Tax Act, 1961 requires the payer to deduct a certain percentage of tax from certain payments made to the recipient. Taxes must be deducted from payments such as commissions, interest, salaries, royalties, contract fees and brokerage fees. Any tax withheld must be remitted to the tax authority by the payer on behalf of the recipient. If payers fail to deduct withholding tax and remit it to the government, they can be fined under Section 271C of the Income Tax Act, explained Rishabh Parakh, a chartered accountant and founder of NRP Capitals. increase.

For example, if an investor fails to deduct Rs.1 million from a particular transaction as TDS, or fails to pay the government even after the deduction, a fine of Rs.1 million or the same amount will be imposed. government. Depending on the circumstances, in addition to late payment interest, you may also be sentenced to imprisonment. 

The Indian government’s views on crypto exchanges

For investors and traders new to the crypto ecosystem, the current situation is undeniably complicated. After a long wait for the 2023 federal budget, the cryptocurrency industry’s budget has not been impressive.The Indian government’s market regulation policy for cryptocurrency trading appears to be getting tougher.

Within a day of the 2023 Business Survey raising concerns about the sector’s excessive turnover and the need for global control, Union Budget’s Nirmala Sitharaman made no mention of the cryptocurrency industry in a Feb. 1 statement. I did. Still, the Finance Act refers to amendments to Section 271C of the Income Tax Act, which could impose penalties on cryptocurrency transactions. It also makes it a crime not to pay withheld cryptocurrency or VDA taxes. Additionally, under Article 119 of the Finance Act 2023, failure to pay TDS for foreign exchange cryptocurrency transactions can result in a seven-year prison sentence. This was confirmed by a tweet by his CEO and co-founder of CoinSwitch, Ashish Singhal.

The 1% TDS still applies to cryptocurrency trading. However, there is one explanation. Crypto exchanges are responsible for withdrawing TDS when using P2P or any other method, but there are no penalties for not doing so. 

How could crypto exchanges be penalized?

Crypto exchanges could be penalized for foreign exchange If crypto exchanges were to be found guilty of foreign exchange, they’ll be punished by the government. TDS penalties may be imposed if the investor fails to withdraw the TDS when requested. Previously, his TDS for virtual currency transactions was not adequately covered by Sections 271C and 276B penalties. The budget has proposed closing this loophole, explains Punit Agarwal, founder of cryptocurrency taxation platform KoinX.

Crypto trading dropped sharply in India after the tax was introduced in 2022. According to news reports, a cumulative trading volume of around Rs 32,000 was shifted from his VDA centralized exchange in the country to exchanges abroad from February to October 2022. Over 17,000 users have switched to overseas exchanges to avoid taxes. As a result, the Indian stock exchange lost up to 81% of its trading volume in the three-and-a-half months from July 1 to October 15, according to New Delhi-based tech policy think tanks Esya Center and Taxsutra.