The central government may introduce reverse charges in the cryptocurrency world. The central government wants to introduce these rules so that the international exchanges will be less of an option because Indian exchanges will be providing better prices.

But how is it affecting us as a buyer, let’s find out?

Reverse charges

What are Reverse charges?

Reverse charges mean the liability to pay tax is on the recipient (buyer) for the supply of goods which is the cryptocurrencyhere  rather than the suppliers (international crypto exchanges). Reverse charges are used by the government to collect tax directly from the consumer removing the mediator.

For example: If you are buying a coin like Solana, you are trading 100 rupees from an International exchange like Binance, then Binance would be charging some trading fee.

Reverse Charges will not be applicable on the trading fee charged by Binance and you will need to calculate it yourself and pay the reverse taxes. As the crypto exchange is not centralized, it is considered as an unregistered supplier in India. And now with reverse charge, the buyer will be paying taxes directly to the government.

In India, the government is charging 1 percent TDS for all your crypto transactions on the Indian exchanges, and now with help of this rule, the Indian government will be able to tax International exchanges as well.

Please note that the Reverse tax law is not yet passed or introduced yet.

Effects of reverse charges on Crypto Traders

  1. A lot of investors might finally shift to Defi exchanges like Uniswap, and Pancakeswap.
  2. Trading volume in International exchanges where KYC is a must may decline.
  3. Binance may lose of a lot of volume from Indian traders.
  4. With such tax implications, Indian traders might consider shifting to foreign countries like Dubai. A lot of the OGs like Nischal Shetty have already shifted their base to Dubai.
  5. This could result in brain drain.
  6. More and more Crypto Entrepreneurs would consider building crypto products on foreign countries.