New income tax rules and how they affect us and our users

The sale and/or transfer of virtual digital assets—VDA, or Crypto in common parlance—will be subject to TDS, or tax deducted at source, at the rate of 1% effective from 1st July 2022. We break down the process to help you better understand nitty-gritties on the official circular released on 22nd June 2022.

A Refresher

TDS is an advance tax to establish a transaction trail, deducted at the time of trade execution, and can be adjusted against your total tax liability at the time of filing your annual income tax returns.

Tell me more, please?

TDS is applicable on sell transactions. This means that you, as the buyer, are liable to submit TDS whenever you buy Cryptocurrency from our vending machines or through our agents. Submission of TDS will the responsibility of the crypto buyer.

Are there any exceptions?

As per the Finance Act 2022, your transactions will not be subject to TDS if your total trade value doesn’t exceed INR 10,000 in the said financial year (2022-23). In order to comply with this exception, Digital Assets will require your PAN number when you purchase cryptocurrency from our vending machines for any transaction over INR 10,000

FAQ’s

Q1. Is there a TDS Cap?

A1. A TDS of 1% will be applicable on all your transactions if your annual aggregate trade value crosses the ₹10,000 limit.

Q2. What happens if my income doesn’t fall in any tax bracket?

A2. TDS will still be deducted, irrespective of the income tax basic exemptions. However, you can claim a refund if your total tax liability is zero or lower than what you have already paid in the form of TDS while filing your annual income tax returns.

Q3. How is TDS different from the 30% tax?

A3. TDS is meant to establish a money trail. You can adjust this against your total tax liability for the year. The 30% tax is payable on profit on the sale of VDA.

Q4. What about the VDAs I receive through coupons?

A4. TDS will not be applicable when you redeem a coupon to receive Cryptos. It will be applicable when you sell those.

Looks like we are being noticed....

So a writer for Zebpay stumbles across our bitcoin vending machine, and writes about it. You can read about it here.

A few things we would like to clarify:

  • We do not operate an ATM, we operate a vending machine. You pay cash, and receive bitcoin (or ethereum).

  • We have not received any contact information from the blog author (but possibly they may have reached out to defunct e-mail address)

And we're back! Again!

It has been a year of ups & downs so far. A landmark Indian supreme court judgement on cryptocurrency followed by a pandemic!

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As we come out of the pandemic, we would like to announce the reactivation of our crypto vending machine in partnership with Garage Society in their Garage 270 co-working space lobby. If you’re looking to purchase crypto, do visit. The process is as simple as ever. Select your currency, get a mobile OTP verification, and insert cash! That’s it!

Peer-to-Peer networks - A possible solution to the RBI Circular

As of the time of publishing, the Supreme Court of India has refused to put a stay on the Reserve bank of India circular directing all regulated entities from dealing with individuals involved in the cryptocurrency business. This has led to multiple initiatives and workarounds by the existing Indian cryptocurrency exchanges. 

Some are carrying on, business-as-usual. Others have decided to shift to being pure crypto-to-crypto exchanges that do not handle any fiat currency, helping them circumvent any RBI-related regulations. 

Another method is to convert all fiat currency handling to peer-to-peer and reduce the exchange to functioning as cryptocurrency escrow provider. 

 

Fig 1: A typical cryptocurrency exchange

Fig 1: A typical cryptocurrency exchange

Figure 1 illustrates how typical cryptocurrency exchanges operate.

Crypto buyers deposit money into a wallet that is maintained by the exchange. Crypto sellers deposit their cryptocurrency into a wallet that is also maintained by the exchange. At any given point in time, the exchange is holding both fiat currency and cryptocurrency on behalf of all its members. 

When a buyer and seller are matched,  a new transaction entry is made in the exchange's ledgers modifying its members balances. Buyers and sellers can then choose to withdraw their cryptocurrency or fiat currency to their own accounts. 

Due to the RBI Circular, however, the exchange's bank accounts are at risk. The exchange will not be allowed to access the banking system (consisting of "RBI-regulated" entities). Some exchanges, therefore, are doing away with the handling of any fiat currency. 

 

Fig 2: A peer-tp-peer(P2P)-based exchange

Fig 2: A peer-tp-peer(P2P)-based exchange

In Figure 2, observe the following possible scenario:

  1. The Seller deposits his/her crypto assets on the exchange, and the selling price they would like to receive.
  2. Buyers will then browse the exchange, and if they wish to purchase the crypto assets at the price, they will click "buy".
  3. At this point - the exchange will inform the buyer to either contact the seller directly to arrange payment (or provide the buyer with the seller's bank details to enable the buyer to transfer payment in fiat directly to the seller). 
  4. Once the seller receives payment from the buyer, the seller will notify the exchange. The exchange will then release the crypto assets to buyer

This allows the exchange to keep operating, and still be in compliance with Indian regulations. The one issue this system does present, however is of possible fraud. 

What if the seller receives payment, but continues to insist that payment wasn't received? In this case, the exchanges will need to have a dispute resolution mechanism in place that would allow the transaction to remain frozen until the disputes are resolved, coupled with a rating system, such as the one that Uber uses for its drivers and customers. This information will help signal the trustworthiness of buyers and sellers in the absence of a third party. 

While we await the 20th July ruling from the Supreme Court, the P2P solution will alow many exchanges to continue operating.