Indian finance minister says 1% TDS on Crypto aims to trace money laundering

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Nirmala Sihtaraman talked about the india’s ongoing efforts on Crypto regulation amid the country’s 200 G20 meetings. 

In India, Crypto trading is legal with the provision of a 30% tax on the profit generated on each crypto transaction. During every crypto transaction (or sell trade) Indian crypto Investors are also required to pay 1% TDS. The 1% TDS rule was initially imposed on the local crypto exchanges in India in Q3 2022 and for this the Indian finance ministry faced huge criticism because this rule on the crypto sector degraded the confidence of short term crypto investors and the impact of this rule can be seen in significant downfall in the the Crypto trade volume on almost every Indian Crypto exchange.

On 13 Feb 2023, In response to a question in the lower Parliament house, Indian finance minister Nirmala Sitharaman said that the country is in talks with government agencies from other countries to bring a global crypto regulation framework because real crypto regulation is not possible by a single country. 

Further, Sitharaman said that 1% TDS on every crypto transaction was introduced to fight against money laundering, drug dealing, or terrorism funding via crypto payment. 

Further, she also clarified that the Central Bank Digital Currency (CBDC) or, say Digital rupee, is different from cryptocurrencies because the Digital rupee will be backed by Indian Central Bank RBI. 

TDS & Controversy

Many experts noted that it is ok that the Indian finance ministry imposed the TDS system against money laundering & drug trafficking but indeed they are making money through crypto transactions because 1% TDS is a very high charge & it will take 6 months to 1 year for the crypto trader to get the TDS paid funds back. 

Few people in the Indian crypto community noted that the government can fix its 1% TDS mistake by replacing the 0.1% TDS system. 

It is worth noting that the TDS system is almost worthless because the majority of the Indian crypto investors use foreign Crypto exchanges and there is no automatic 1% TDS cut system. And also on the decentralised crypto wallets & Exchanges, crypto traders can easily bypass this rule. 

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