India’s new tax policy casts a shadow on crypto investments. Details inside…

• The introduction of TCS in India has both implications and challenges for crypto investors.
• In light of this, crypto investors are advised to plan their investments carefully.

India has introduced a 20% Tax Collected at Source (TCS) for foreign investments in its 2023 Union Budget that has come into effect as of 1 October.

If an individual remits more than 7 lakh INR in a year under the Liberalized Remittance Scheme (LRS), they are required to pay 20% TCS on the excess amount. This is significant because it reduces the actual investment amount and, subsequently, the returns from crypto investments.

TCS is not an additional tax but rather a part of the income tax liability. Investors can claim the credit for TCS against their final tax liability when filing their returns.

For instance, if an investor’s total tax liability is Rs 5 lakh and they have already paid Rs 2.5 lakh as TCS, they will only need to pay the remaining Rs 2.5 lakh as the balance tax.

There are exceptions and exemptions when it comes to TCS in the context of crypto investments. TCS will not apply if an individual deducts Tax Deducted at Source (TDS) under any other provision or if they are notified by the government.

Additionally, TCS will not be applicable if an individual remits from an income source that is exempt from tax. These include long-term capital gains from equity or funds.

New rules could impact Indian crypto investment landscape

The introduction of TCS has brought both implications and challenges for crypto investors. One significant effect is the increased compliance burden, as investors are now required to file a return and pay taxes on their crypto income. This process can be complex and time-consuming.

Moreover, TCS has the potential to discourage new and small investors from entering the crypto space. The upfront tax payment of 20% on remittances exceeding Rs 7 lakh can be substantial. This may deter those who may not have significant capital to invest.

In light of the introduction of TCS, crypto investors are advised to plan their investments carefully. It’s crucial to factor in the TCS while making investment decisions and plan remittances accordingly.

Diversifying one’s crypto portfolio can be a good way to reduce the heat. Also, exploring alternative ways of investing in crypto, such as utilizing domestic exchanges, engaging in peer-to-peer (P2P) transactions, and exploring decentralized finance (DeFi) options, can be viable.

India’s crypto tax may remain unchanged for 2 years

India’s uncertain crypto tax regime may persist for up to two years, according to a recent statement by Nischal Shetty, CEO of WazirX exchange. The introduction of a 1% TDS on crypto transactions by Indian authorities resulted in a significant decline in trading volumes, impacting domestic exchanges.

Shetty believes there’s no immediate reduction in TDS, given the lack of formal discussions between the industry and lawmakers.