To Dodge Crypto Tax, Indian Users Are Going the Global Exchange Route

According to data from AppTweaks, an app analytics platform, shared by industry executives, Binance alone was downloaded 750,000 times by Indian users in June and July. Additionally, Seychelles-based KuCoin and US-based Coinbase got nearly 200,000 downloads each, while some 16,000 users also downloaded San Francisco-based Kraken.

About 40-50% of downloads typically convert to active users, an official at crypto exchange WazirX said on condition of anonymity.

“Our feeling is that investors are turning to foreign exchanges, both centralized and decentralized, thereby being unwittingly non-compliant with Indian laws,” WazirX said in a statement. being app installs – foreign exchanges saw an increase in the number of app installs during this period while Indian exchange app installs remained constant,” he added.

India’s new tax rules require exchanges to levy 1% TDS on crypto transactions and submit it to the income tax department on behalf of the user. Crypto exchanges apply this tax when a user places an order, thereby reducing their net earnings, to prevent slippage (difference between the expected price of an order and the price when it is actually executed).

International exchanges, however, do not apply these taxes and operate as before. As a result, crypto assets can be transferred from wallets on Indian exchanges to global exchanges by transacting through blockchains. While users who do this incur one-time transaction fees, called gas fees, most consider this a better option than paying TDS each time they execute a trade.

International exchanges like Binance and KuCoin perform Know Your Customer (KYC) checks before allowing trading on their platforms. According to clarifications issued by the Central Commission for Direct Taxes (CBDT) via Circular No. 13 of June 22, stock exchanges must levy the 1% TDS on transactions. It does not specify whether this applies specifically to Indian scholarships.

However, more savvy investors have no apprehension about this. For example, a 22-year-old engineering student from Bengaluru said that after transferring assets to Binance, he uses peer-to-peer (P2P) trading options to convert crypto into e-commerce gift cards, thus avoiding taxes. absolutely.

Binance and KuCoin did not respond to questions. However, in an interview with The Indian Express in July, KuCoin CEO Johnny Lyu said that the platform registered 5.6 million new users in the first half of 2022.

According to a spokesperson for Paxful, a P2P crypto exchange, the platform has nearly 500,000 Indian users, and by 2022 more than 25% of exchanges in India had gift cards redeemed for crypto.

A senior executive at one of India’s major exchanges said overnight traders, who made up a large part of India’s crypto community, left after the taxes were imposed. Those who remain are the “hodlers” – individuals who make long-term bets on cryptocurrencies and make large investments over time.

Additionally, tax lawyers and accountants are unclear about the regulations regarding reporting and transferring these assets overseas. In 2018, the Reserve Bank of India (RBI), in response to a Right to Know (RTI) request, said that no guidelines had been issued on virtual currencies under the Management Act. Exchange (FEMA). “Virtual currency is not recognized as currency under Section 2(h) of FEMA, 1999. Therefore, no guidelines have been issued on virtual currencies under FEMA,” RBI said. in RTI’s answer.

Anoush Bhasin, the founder of crypto tax advisory firm Quagmire Consulting, said exchanging crypto profits/income for gift cards is not inherently illegal, as long as individuals declare the income and pay taxes. required. However, using gift cards to avoid banking does not exempt users from tax. Non-disclosure in tax returns could cause problems for users.

In Circular No. 14 of June 22, CBDT stated that buyers should deduct TDS in the case of P2P transactions. “In a peer-to-peer transaction (i.e. buyer to seller without going through an exchange), the buyer (i.e. the person paying the counterparty) is required to deduct tax under Section 194S of the Act. The tax so deducted shall be deposited with the Government in accordance with the time and procedure prescribed in the Act read together with the relevant provisions of the Income Tax Rules 1962,” the circular states.

Catch all the trade news, market news, breaking news and latest updates on Live Mint. Download the Mint News app to get daily market updates.

More less

To subscribe to Mint Bulletins

* Enter a valid email

* Thank you for subscribing to our newsletter.

Comments are closed.