Govt should consider cutting TDS on crypto transactions from 1% to 0.01%: Shetty

Crypto regulations in India: After implementing a 30 per cent tax on crypto gains, the Government has also imposed a 1 per cent tax deducted at source (TDS) on all crypto transactions in India from July 2023. With this, crypto users of all centralised exchanges have to pay 1 per cent extra both for buying and selling their crypto assets apart from paying a hefty tax on crypto profits. Nischal Shetty, Co-founder of WazirX and a leading voice in the Indian blockchain space, believes that this extra one per cent TDS is having a severe effect on the rate of crypto adoption in India and is hopeful that the government will cut it significantly to minimise the impact. 

In an exclusive interview with Republic Business, Shetty shared his views on a range of topics including crypto regulations in India, the rate of blockchain adoption, and India’s talent pool in the Web 3.0 space. 

Edited excerpts: 

On crypto taxes and regulations in India

We are voicing our concern about the current crypto tax regime in the country as the 1 per cent Tax Deducted at Source (TDS) has done more harm than good for the industry. It has affected the regular traders the worst who need to keep moving their capital constantly to make a living out of trading. We appreciate that our Financial Minister clarified that the implementation of TDS was only to track the total transactions happening on the centralised exchanges. 

Still, we suggest that the TDS can be reduced from 1 per cent to 0.01 per cent without compromising on the purpose of tracking transactions while also not harming a booming industry.

Other than the taxes, India has been navigating the regulatory challenge beautifully till now and the recent FIU notification is just one of the many attempts that the government is taking to regulate cryptocurrencies in the country. Indian crypto exchanges have also evolved from being reactive to regulatory demands to being proactive and sharing any suspicious transactions with the regulatory authorities. 

Suggestions for improvement 

The current regulatory landscape in the country is on the right lane with a clear focus on customer protection, however, there are a few things which can be improved. Even though things have improved, better access to traditional banking infrastructure can go a long for for the industry and we are hopeful that the government will build clear regulations to bridge this gap. 

The 30 per cent tax on crypto gains is another pain point for young investors who are involved in the space and face undue pressures due to high taxation. We are also expecting some custody guidelines from the government which set the lower bar for minimum securities crypto platforms need to have to operate in India. 

On Bitcoin ETF approval

The SEC’s Bitcoin approval is not a big surprise for us as this was imminent. Everybody in the space had this idea that the SEC was going to approve the spot Bitcoin ETF. Even the market was aligned with the response as it was soaring months before the halving and no major uptick was witnessed when the decision was announced. Surprisingly, we still have not seen any major dump, hours after the news was announced, indicating that investors are optimistic that Bitcoin still has the potential to grow. 

Bitcoin ETF approval is just the start and will significantly increase market liquidity. Apart from that, the introduction of Bitcoin ETFs is crucial for those investors who only invest in traditional financial instruments such as institutional investors, money managers, and people from places where cryptocurrencies are still not legal means of investment. 

ETF approvals in the USA are a start and the cascading effect is bound to follow in the other legislation. When it comes to India, the regulations are still not a major challenge and with time, things are only getting better. 

On impacts of increasing blockchain adoption on WazirX

Signups on WazirX have doubled in the span of the last 2-3 months and a major uptick was seen after the Government of India’s Financial Intelligence Unit’s notification which barred international exchanges, not complying with the Prevention of Money Laundering Act 2002. The government has clear and simple guidelines when it comes to registering a crypto exchange and I only wonder why international exchanges have not registered with the government yet.  

Explaining Shardeum

Shardeum is a decentralised blockchain that can host smart contracts using which developers can build apps, games, and all kinds of decentralised programs on top of it. Now we already have blockchains which offer the same features but they were designed at times when nobody thought that they would be used by millions of people altogether. 

Inherently, blockchains like Ethereum are not meant for mass adoption and that is what makes Shardeum different. Shardeum is designed to scale so much so that it can even cater to billions of users across the globe without the transactional cost going over 1 to 2 cents. 

Shardeum aims to solve the scalability trilemma of scalability, security, and decentralisation taking the consensus to the transaction level ensuing high transaction speed due to parallel processing, and low fees. Shardeum’s combined proof-of-stake and proof-of-quorum enables high security for the blockchain while its permissionless and community-driven nature empowers the decentralisation in the blockchain. 

On Indian talent in Web 3.0 

We have a lot of young folks, in the 20 to 30-year-old age bracket, who are building the Indian Web 3.0 space. Most of these young men are from tier-2 and tier-3 cities and decentralised finance has become not only viable but lucrative career choices for them. The understanding of blockchain and decentralised technologies is increasing rapidly across the new-age talent pool and what surprises me the most is that these young minds have a better understanding of the core blockchain concepts than most of the chaps working in the industry for years. 

Even though there are some apprehensions around the tax and regulations, Indian youths are coming out as the leaders in the space and I wish them great success in their journey. 

On personal favourite cryptocurrencies

I run an exchange and thus cannot promote or demean any crypto assets but still, I would say that Bitcoin is a top choice for me. Bitcoin’s working mechanism is simple and works on the core principles of economics. It is an industry favourite and has stood the test of time. Bitcoin is like Gold and its value is only going to increase in the times to come. 

I am also bullish on the blockchain infra projects which enable the developers to deploy smart contracts and build on top of them. Decentralised Exchanges and other DeFi projects will also become more popular in the times to come. 

In the last bull run, we have seen a rise in the decentralised social media platforms and games, and in this cycle, we will see more formidable projects of this spectrum.