Recently, I got myself into yet another conversation around taxation. It was on a Telegram group of crypto enthusiasts. There was this usual rant around government imposing draconian crypto taxation regime. So after convincing them for a while, I started getting backlash. At this point, I asked one of them that how much tax are they willing to pay. To my surprise they mentioned something to the tune of 2-5%.
Now here’s the problem. Our expectations are too damn high. For your reference, we pay somewhere around 10-20% capital gains tax on our equity holdings as well. I agree there is a margin for improvement in terms of offsetting of losses, some initial exemption etc. But if you believe that the government will let you off this hooks with a measly 2%, well, you might be in a wrong country altogether.
And while this was fresh in my head, yesterday, the GST council of India hinted at imposing a 28% GST on crypto transactions. This is in addition to the 30% tax already levied by the government on all gains made on digital assets. While #GSTonCrypto trended on Twitter for a while, the noise around bear market was enough to suppress it soon.
Out of all the brilliant memes that came out of this conversation, one of them particularly caught my eye. (Refer to the image)
While it looks like a hearty attempt to take a jab at the current tax situation, I wanted to highlight that this is far from reality. Even the understanding around GST on crypto is half baked at best right now.
Some Common Misconceptions Around Taxation:
Every time the topic of taxation pops up, I can see the pent up anger inside a person’s soul. And I understand. Who like taxes after all. But the problem with anger is that it often blinds you. So today, I will try my best to share certain misconceptions that I have come across and throw some light on them.
A. 30% of What?
Let’s take it from the top, shall we? I have had multiple conversations where people think that their entire principal amount is going to be taxed at 30%. They would often say that their portfolio is up by 25% and the government is going to take away all of it.
Well, if you are one of those people, I have good news for you.
The tax is applicable on the profits made by you. So if you invested $100 in a digital asset and exited with $150 in hand, the government is going to charge you 30% of $50 i.e. $15.
B. TDS Makes it 31%:
There’s another notion that states 1% TDS is over and above 30% tax. Well, that is not correct. TDS by name stands for ‘tax deducted at source’. You could get a rebate of TDS while you are filing your taxes. So that 1% which catches the eye is a part of the 30% mentioned above. Government usually puts TDS in place to track funds.
C. GST will take it all from us:
Finally coming to the 28% we have just heard about. I believe that 28% is going to be levied on maker and taker fee. It is not going to eat a chunk out of your profits. For the uninitiated, the government already levies 18% GST on these transactions. They are proposing to increase it to 28% now.
Are these Taxes Going to Kill Crypto?
Well, there is a long and a short answer to this question. I would start with the longer version. In my opinion, it is very difficult to regulate an asset like crypto for a country of our size. Compare it with China which has a similar population. They banned crypto outright.
So here are a few reasons I think crypto taxation is in a way a good move:
A. Acknowledging Crypto’s Existence:
The Indian government has at least taken steps to regulate this asset class. It would have saved them a ton of time, money and effort to simply put a blanket ban on crypto assets.
I think this is a step in the right direction. It clearly shows the intent of the government to understand and regulate this space. After years of ignorance, they have finally come to acknowledge the existence of crypto.
B. Regulation Safeguards You:
A few months ago there was some glitch at NSE. This led to halting the trading for a few hours. Post that, some experienced, advanced chaps exploited this situation and made money out of it. A few days later, government stepped in and penalized the players at fault.
Now let’s talk about crypto. Every time there is a market crash and an opportunity to arbitrage, WazirX, CoinDCX and CoinSwitch Kuber halt the INR deposits. Don’t you want them to be answerable? If yes, they got to come under the government radar.
C. Tracking Money Trail:
Now this may sound like snooping. But I think in order to track illicit funds, government needs to have systems in place that would help them track the money. By taxing the cryptocurrency, government is ensuring the KYC AML regulations are in place.
The Flip Side of Taxation:
I agree that 30% is a tad bit much. We could have lived with a lesser bracket too. However, it’s not written in hard stone. Government can reconsider it in the upcoming budgets as well.
For your reference, when income tax laws were formulated after independence, the highest tax slab was fixed at 97.75%.
With that being said, there is a significant chunk of the population that would face severe implications because of this.
Yes, traders might find it really difficult to manage the 1% TDS for their daily transactions. I would not deny the fact that this tax structure might be specifically aimed at reducing speculation and hence trading.
Final Take:
To summarize everything, just like Blockchain and Cryptocurrency space, everything is evolving right now. Who knows what narrative takes over in the upcoming days, months or years.
Nonetheless, we’d all agree on one fact. It is an exciting area to be in. I’d like to quote Sandeep Nailwal– Founder of Polygon.
“A month in crypto is equivalent to 3 normie months”
What are your views about the taxation?
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Until next time..
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‘This blog post is part of the blog challenge ‘Blogaberry Dazzle’ hosted by Cindy D’Silva and Noor Anand Chawla.’
19 responses to “Unpopular Opinion: Crypto Taxes in India are Just Fine”
You have explained the tax table in such a detailed manner. Even a dumbo like me could understand.
Tax itself is like a word where you’re like (not again) however the way and patience you have had in explaining is too good
You’ve rightly added ‘unpopular opinion’ to the title. Levying taxes will never get good support. In a country like ours, I do feel we pay high taxes. How this will play out in case of crypto will have to be seen.
Crypto and tax together! Your articles are covering so many topics and taxation is a very difficult topic for me. I like learning through your articles each one is a new topic for me.
You are correct. There are a lot of misconceptions around taxes. 30% is too high but crypto is not getting banned. At least we have a foot in the door now. As always, very well explained.
So true, Taxation and Tax policy is too hazy to most of the people. You have explained all these so well in this post.
I really think 30%tax is more. Government is taking the profit but you have explained it on details. I am always learning from your article.
While I agree tax is important , i’m not so sure I want a crypto tax, however you have highlighted why that may not be such a bad thing so kudos!
Yu posts are full of information. I don’t know much about crypto currency but if it is treated as income, it should be taxed as income.
30% is too high. Glad that you took up the time to explain this in detail
Tax is a butter pill we all have to swallow! We have always considered crypto to be above governments etc etc but once the ordinary citizen gets involved, well then, we need regulations to safe guard them. Would be nice if taxes are reasonable.
You have explained it all very well. I agree we need tax but to what extent is the question. Certainly not 2-5% but a lot less than 25% …?
Financial literacy is very important and your post is very informative.
Providing excess tax for every service is an unpopular opinion and cryptocurrency is something Indians are trying to understand.
I agree about the taxes but taxes on crypto is still kind of uncceptable to me.
We are more worried about taxes as v. Few people are willing to pay taxes as they expect more from government.
Your knowledge on these things is commendable but unfortunately the topics arent of my interest😛.. n like you said, it’s an unpopular topic but it’s only because we do not get ANY benefits from the government for the tax that we pay… none!
What a wonderful to explain the tricky topic. The meme cracked me up and then I read your introduction section, it all make sense. I love reading your blogs and how simple you make all these jargons, I wish I had a teacher like you back in my school days. Keep shining 🙂
You explained such tricky stuff easily. Wow
You are very hopeful and upbeat – I don’t share your views necessarily but I do see your point!