NEW DELHI : The introduction of 1% tax deducted at source (TDS) on cryptocurrency trading could fetch up to ？1,000 crore annually to the exchequer, given the current trading volumes, Central Board of Direct Taxes (CBDT) chairman J.B. Mohapatra said on Wednesday.

       The TDS provision proposed in the Finance Bill to track transactions in the market and widen the tax base applies to the gross value of a transaction or payment for the transfer of virtual digital assets to a resident. TDS paid is adjusted against the actual tax liability arising from the income generated from such transactions.

       “Some anecdotal reports have come according to which turnover in (cryptocurrency) exchanges ranges from ？30,000 crore to ？1 trillion a year. From a TDS of 1%, ？1,000 crore of TDS will come if the volume of transactions is ？1 trillion," Mohapatra said in an interview.

       The turnover will result in TDS, and individual transactions of the entities playing in the market will result in the tax on their income at 30%, Mohapatra said. However, he declined to immediately estimate potential receipts from the 30% tax, given that it depends on the margins from these trades.

       According to industry estimates, the crypto asset turnover and, hence, the TDS receipts to the exchequer could be much higher. “The average daily turnover on all Indian crypto exchanges is at least $100 million," said Sidharth Sogani, founder and chief executive of CREBACO Global, a research company focused on blockchain and cryptocurrencies. At an exchange rate of 74.8 rupees to a dollar, it would work out to nearly ？2.7 trillion annually.

       The proposed taxation regime of virtual digital assets is prospective, and the CBDT will decide on the approach to taxation of past transactions after deliberations, Mohapatra said.

       Given the special tax regime, an assessee’s virtual digital asset trading income is computed separately from the income from other sources. According to S.R. Patnaik, partner and head of taxation at law firm Cyril Amarchand Mangaldas, income tax is required to be paid by the transferor of crypto at 30% on gross income derived from aggregate of all crypto sales undertaken.

       “This will be aggregated at the end of the year as a separate source, without impacting the taxable income from other sources. Taxes will have to be paid on this income," Patnaik said. No deductions will be allowed in computing the income other than the acquisition cost. It is also technically possible that the TDS outgo on the transaction value may be more than the actual income tax applicable on certain transactions with very low margins.

       “It does not matter whether total amount of TDS is higher than actual amount payable by recipient of such income. Therefore, the only way to avoid or reduce TDS would be to obtain a lower withholding tax certificate from the tax department by making a formal application at the beginning of the year," Patnaik said.

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       Abhinav Kaul contributed to this story

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