How Crypto Industry is Embracing Tax Compliance Though initially disappointed with the government on imposition of high tax on income on virtual digital assets, the crypto industry is seen to be coming to terms with it and is partnering with various tax platforms in order to improve crypto tax compliance in the country.

In 2022, when finance minister Nirmala Sitharaman announced in the Union Budget a 30% tax on any income from virtual digital assets and also a 1% TDS (Tax Deducted at Source) on all crypto transactions, it sparked a major uproar and disappointment in the industry. Post the announcement, the exchanges witnessed significant reduction in the trading volume as many crypto traders flocked to foreign exchanges to escape taxes.

However, one year down the line, the crypto industry is seen to be coming to terms with this move of the government. Not only has the industry seen the emergence of dedicated crypto tax startups/ platforms in the country, but also crypto exchanges tying up them.

"I believe the government has laid clear guidelines on crypto to date. The taxation laws are clear; there are compliant exchanges running in the country which people are trading on. The expectation from an Indian resident who invests in crypto is to invest through regulated, compliant exchanges and to pay taxes regularly," says Raghuram Trikutam, CEO, Descrypt.

Says Minal Thukral, EVP, Growth and Strategy, CoinDCX. "The more compliant the crypto industry, the more it will become a safer asset class."

So, what all tax platforms have come up to help improve tax compliance? TaxNodes, Koinx, and Descrypt are some of the crypto tax startups that set up their shop in the industry last year besides Clear and Taxcryp that launched dedicated crypto taxation verticles. "With the rapid growth of the cryptocurrency industry, there is a demand for a specialized platform that can provide accurate tax computation, personalized advisory services, and assistance with tax return filing. A dedicated startup can stay updated with evolving regulations, offering tailored solutions to ensure proper tax compliance and cater to the unique requirements of crypto investors."

Agrees Trikutam, "Crypto taxation from the outset is an extremely complicated process. Unlike a traditional setup, crypto taxation involves a lot of calculations at a transaction level. Further to it, one needs to have an idea on the source and destination of every transaction to determine the taxation involved. A dedicated startup can stay updated with evolving regulations, offering tailored solutions to ensure proper tax compliance and cater to the unique requirements of crypto investors.

EXCHANGE-PLATFORM TIE UP

In order to improve crypto tax compliance in the country, crypto exchanges too are partnering with these platforms. "When we talk about the crypto taxation laws, there are a lot of gray areas compared to equity or any other matured asset class.. For instance, what type of income I am generating. Can I offset or not? There are lot of questions in users head- how to navigate, how to book different incomes-buying, trading, earning etc. Hence we wanted to partner with a platform who take the entire record of your trading history with the exchange and give you a combined report of your entire financial year. You can import your trading history. Think of it as a Form 16 of your crypto. The whole idea is to make it simpler. We are working very closely with partners, to ensure that we build a healthy environment for crypto investors," says Thukral.

Rahul Padidipati, CEO, ZebPay, says, "We take compliance as a paramount priority. We have always maintained the highest compliance standards since our inception. To take this a step further and to help our users seamlessly file their crypto taxes, we have partnered with TaxNodes."

Exchanges are also looking at this partnership as an alternate source of income in this crypto winter. Says Rajagopal Menon, Vice President, Wazir X, "Volumes are still low. There is a bear market. Crypto market is down across the world. In order to survive, we are looking at an alternate source of income. So these partnerships with tax comapanies are a win-win proposition for both of us. One is that they have a captive audience of people who have done crypto taxation and two our users need to know that paying tax is absolutely essential. In the Union Budget 202,3 FM announced that if you dont pay the TDS you have to face seven years in jail. Its critical that Indian don't look at shortcuts as it will not help anyone."

While the crypto industry is taking steps for crypto tax compliance, it also feels the current tax on crypto is way too high and needs to be reduced to help the industry thrive, "All Indian exchanges saw a drop in the volume of trade due to the current tax rate. Moreover, the crypto winter of 2022 made it difficult to thrive. Although we note that the government is paying attention to crypto and collaborating with other nations to arrive at a technology-driven regulatory framework, a reduction in the capital gains tax to a more reasonable rate will increase participation, help the industry thrive and pave the way for innovation," adds Pagidipati.