WazirX's Nischal Shetty says govt will return $900M under new crypto rules

WazirX Founder and CEO Nischal Shetty said the new 1 percent TDS deduction on all cryptocurrency trades in India will end up costing the government a lot more in bureaucracy, as it will have to create the mechanisms to return up to $900 million to traders in tax returns next year.

Earlier in February, Finance Minister Nirmala Sitharaman announced the 1 percent tax deducted at source (TDS) for every cryptocurrency trade in her Union Budget speech.

While Indian crypto exchanges have applauded the first steps towards regulating and formalising the industry, they believe the 1 percent tax on every trade is a high price to pay for traders and exchanges.

However, Nischal claimed it is also "an absolute lose-lose situation for both the government and the people."

His logic is simple. The government can only deduct tax on profit and not on turnover. He claimed that across millions of investors, India saw $100 billion in trading volume last year. If we assume that number stays steady next year, that would mean a TDS collection of 1 percent or $1 billion, on just turnover.

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However, since India holds $3 billion (less than a third of trading volumes) in assets — assuming 10 percent net profit over the year — Indians will make a net profit of $300 million during the year.

Considering the 30 percent capital gains tax announced during the Budget on cryptocurrency trading, this translates to around $100 million in tax (30 percent of $300 million).

If the government has already collected $1 billion in TDS, that will leave them with the onerous task of returning $900 million to taxpayers during income tax return season.

According to Nischal, this system disincentivises traders from investing, leading to lower profits, a smaller cryptocurrency industry, and a huge bureaucratic nightmare of returning $900 million to traders at the end of the next financial year.

Overall, he predicts this will end up actually costing the government money to enforce efficiently.

The WazirX founder proposes a simple alternative. Instead of a 1 percent TDS on every trade, the Centre should implement a 0.1 percent TDS, which will net the government around $100 million in taxes, similar to what they can expect from the 30 percent capital gains tax anyway.

As Nischal said, this leaves the government "very little to refund, traders don’t get affected much, they can continue to trade and make more profits. More profits = more income tax for the government."