The Ministry of Finance has rejected a recommendation to ease the tax burden on Virtual Digital Asset (VDA) transactions, turning down a key demand to reduce the TDS rate from 1% to 0.01% and raise the threshold to ₹5 lakh. The rejection was revealed in the Select Committee Report on the Income Tax Bill, 2025, tabled in Parliament this week.
Currently, transactions involving VDAs—such as cryptocurrencies and NFTs—are subject to a 1% TDS under Section 194S of the Income Tax Act, applicable when the total amount paid during a financial year exceeds ₹10,000 (₹50,000 in certain cases, like specified persons). The provision was introduced in 2022 to track and tax gains from crypto trading. However, stakeholders have consistently flagged concerns about its high rate and low threshold, leading to liquidity issues and administrative overload.
According to page 2988 of the Select Committee report, the proposal was to “reduce 1% TDS to 0.01% and increase TDS threshold to ₹5,00,000”—bringing it in line with securities and commodities transactions, which are subject to 0.01% Securities Transaction Tax (STT).
Finance Ministry pushes back
In its written submission to the Committee, the Ministry of Finance stated: “Thresholds and rates have been sufficiently rationalised in the Income-tax Bill, 2025. Thresholds have been increased and rates have been reduced for the convenience of the taxpayers. The rates are dependent on the type of transactions, payers and payees. For residents, now there are only four rates in the Bill viz 0.1%, 1%, 2% and 10%. Therefore, significant rationalisation has already been done.”
The Ministry further justified the current structure by noting: “In some cases, the rate is also a measure of the income component embedded in the payment, particularly in the case of passive incomes like rent for immovable property, compensation, income in respect of units, certain royalties and dividend. There cannot be a same rate or threshold for all types of payments as the component of income embedded in any payment is different.”
Data-driven rationale behind the demand
The push for rationalisation was backed by research from the Esya Centre, a policy think tank. According to the report: “An ESYA Centre report, projections based on the status quo estimate a total trading volume of ₹17.7 trillion by Indians on offshore platforms over the next five years, potentially resulting in ₹177 billion in uncollected TDS.”
It added: “It also demonstrates that a scenario where TDS is reduced to 0.01 percent (comparable to securities and commodities) and the share of assets held on domestic platforms reverts to pre-February 2022 levels, approximately 82% of Indian users would likely trade through domestic or compliant platforms. This shift could generate ₹91.69–₹183.38 billion in tax revenue over five years, assuming 50–100 percent of VDA profits are traded annually.”
The report also cited the burden on small traders: “Most VDA sellers (mainly individuals) are in the lower income brackets. Thus, increasing the threshold from ₹10,000 / ₹50,000 to ₹5,00,000 will reduce the administrative burden on the tax department in processing refunds.”
Other TDS-related concerns also dismissed
The report notes that the Finance Ministry also rejected several other requests relating to TDS:
- Uniform TDS rates: The Ministry stated that a uniform rate is not feasible due to the varying nature and embedded income of transactions.
- Exemption for offshore supply of goods: The demand for blanket exemption for non-resident suppliers was rejected, with the Ministry asserting that such matters are better addressed administratively through circulars and FAQs.
- TDS structural shift: On concerns around the move from sections to tabular format, the Ministry stated that it does not anticipate major disruption. However, stakeholders flagged potential compliance issues.
Tax experts flag compliance burden
Tax experts have cautioned that while simplification is the goal, the transition could be disruptive. An tax expert said: “The move from various sections to a single table with rows would mean: a) The taxpayers would be required to overhaul their ERPs/accounting processes; and b) The TRACES portal and the e-filing system will require updates to accommodate these new changes, especially the integration of table references in the TDS challans and e-filing statements.”
He added, “The MoF should consider issuance of transitional measures or guidelines for taxpayers and authorities to adapt smoothly to the new framework. The proposed amendments, especially the introduction of new tables and their application, could open the door for potential litigation concerning the interpretation and application of TDS/TCS provisions, especially in relation to existing taxpayer practices. The current TDS sections and their interpretation had evolved and stabilised with multiple court rulings and circulars. It needs to be seen as to how many of those would continue to be applicable especially given our comments on the approach of the Income Tax Department on past circulars.”
Outlook
With the crypto sector still unregulated but heavily taxed, India’s approach remains one of cautious oversight. While the Finance Ministry maintains that tax policy around VDAs is driven by broader fiscal considerations, industry voices continue to press for a more enabling environment that would encourage domestic innovation and compliance.
For now, the 1% TDS on VDA transfers stays intact—a rate the government views as balanced but which the industry continues to see as a drag on liquidity, innovation, and formalisation.
