BENGALURU: Three to five million crypto users have shifted to offshore trading platforms with the imposition of a 1% TDS on the trading of virtual digital assets (VDA) in India, and this has deprived the exchequer of Rs 3,493 crore revenues, as against the collected revenue of Rs 258 crore, according to a report published by technology policy think tank the Esya Centre.
The TDS was announced in February 2022, with a single offshore exchange reporting 450,000 signups in the month following its implementation in July 2022. Web traffic, active users, and downloads by Indians on offshore platforms have increased since July 2022, it said.
Out of the Rs 258 crore, 97% of the amount, Rs 250 crore was paid by domestic Indian VDA exchanges, and only Rs 7 crore was collected from trades by Indians on offshore platforms, only 0.2% of the Rs 3,500 crore that should have been collected.
The study also revealed that TDS has the greatest impact on users as they want the levy to be suspended. It said that the P2P traders data, collected from leading offshore exchanges, suggests that over `3,50,000 crore worth of VDAs were traded by Indians on offshore platforms between July 2022 and July 2023, accounting for more than 90% of the total VDA trade volume by them.
And, a survey of executives at seven leading Indian VDA exchanges finds that the TDS is the most important reason for high offshore P2P trading. “Lowering the TDS to 0.01% would be the most important corrective measure to motivate traders to trade on domestic exchanges,” it said.
The Esya Centre study proposes that the government should clarify the applicability of TDS to offshore platforms, lower the TDS to 0.01% or implement an alternative reporting mechanism, such as the submission of an Annual Information Report (AIR), to fulfil the purpose of data collection.
“The VDA tax architecture in India is a lost opportunity in terms of revenues for the exchequer and localisation of the VDA industry. While the VDA market in India is burgeoning, the benefits of the same are being reaped by offshore exchanges,” said Vikash Gautam, the author of the report.
TDS has the greatest impact on users: Report
The study revealed TDS has the greatest impact on users. It said the P2P traders data, suggests over Rs 3,50,000 crore of VDAs were traded by Indians on offshore platforms between July 2022 and July 2023, accounting for over 90% of the total VDA trade volume by them