TDS deducted on CoinDCX for NRI – do I need to pay tax on gains

- It is an Indian Income as the income was accrued in India. You can file the updated return for the F.Y. 2022-23 (A.Y. 2023-24)

- Assuming TDS was deducted u/s 195. Please confirm

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Given your situation, let me clarify the tax implications based on the points you've mentioned.

1. Taxability of Cryptocurrency Transactions in India: The Income Tax Department of India has been increasingly clear about the taxation of cryptocurrency, especially after the implementation of the 30% tax on cryptocurrency gains in the 2022 budget. Whether or not you're an NRI, the Indian tax authorities may still consider you liable for taxes on cryptocurrency trading that involves Indian platforms or transactions.

2. Trading on CoinDCX: Although you did not deposit INR or withdraw funds to Indian bank accounts, since you traded on CoinDCX (an Indian platform), this still falls under the purview of Indian tax laws. Indian tax authorities have been focusing on the use of platforms based in India (like CoinDCX) for trading cryptocurrencies.

3. Tax Deducted at Source (TDS): TDS (Tax Deducted at Source) on cryptocurrency trading is relevant under the new provisions for taxation of digital assets. If CoinDCX deducted TDS on your transactions, this is an indication that the platform treated your crypto trading as taxable under Indian law. This TDS is typically deducted at 1% under Section 194S for crypto-to-crypto transactions, and it is meant to be adjusted against your final tax liability.

4. Liability for Taxation: Even though you did not use INR directly for your crypto trades, your transactions were conducted on an Indian platform, CoinDCX, which makes them subject to Indian tax laws. The gains you make from crypto trading are taxable as capital gains, and since you were an NRI during FY 2022-23, the tax treatment depends on your residential status and the nature of the transactions. If the crypto gains are classified as capital gains, the taxation would depend on whether they are short-term or long-term.

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     Short-term Capital Gains (STCG): If the crypto asset is held for less than 36 months, the gains will be taxed as short-term capital gains at 30% (plus applicable surcharge and cess).
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     Long-term Capital Gains (LTCG): If held for more than 36 months, the gains could be taxed as long-term capital gains, but cryptocurrencies generally do not qualify for the lower tax rate of LTCG and are typically taxed at the same rate as STCG.

5. Residency Status and Taxation: Since you were an NRI during FY 2022-23, you are liable to pay taxes only on income earned or accrued in India, including income arising from crypto trading on Indian exchanges. However, if you did not earn income in India and your trading was only with foreign counterparts, you might not be liable for taxes in India. You will need to check your exact residency status for that period, as it may influence the way the gains are taxed.

6. Other Tax Considerations: If you are a tax resident in another country, the tax laws of that country may apply to your crypto gains. India has a Double Taxation Avoidance Agreement (DTAA) with some countries, so you may want to explore that to avoid double taxation.

In Summary: Even though you did not deposit INR and conducted crypto-to-crypto trading with foreign counterparties, your use of CoinDCX, an Indian platform, means that your gains may still be subject to Indian tax laws. The TDS deducted by CoinDCX will likely be adjusted against any final tax liability. You will still need to report your gains under the head "Capital Gains" in India, and you should consider the applicable tax rates based on whether the gains are short-term or long-term.


To ensure the correct compliance based on your exact situation, feel free to connect especially concerning NRI tax rules and cross-border taxation.

As the arbitrage gain was earned on the Indian exchange therefore it is an Indian income irrespective of the fact that the original asset was foreign asset and ultimate proceeds were credited in the overseas bank account 

The Indian government does not recognize cryptocurrency as a currency but treats it as a virtual digital asset (VDA).

• Profits from the sale of cryptocurrencies are subject to taxation under Section 115BBH of the Income Tax Act, which imposes a flat 30% tax on gains with no deduction for expenses except the cost of acquisition.

• If you are an Indian tax resident and you sell your cryptocurrency (a foreign asset) to a foreign buyer via an Indian broker:

  • The gains will be taxed at 30% (plus applicable surcharge and cess) under Section 115BBH.
  • 
    TDS of 1% may also apply under Section 194S if the broker is facilitating the transaction.
    
    
    

• If you are an NRI, taxation depends on whether the income is considered to have an Indian source. If the crypto exchange or broker is in India, the income might be deemed to arise in India, making it taxable in India under Section 9 of the Income Tax Act. Tax treaties (DTAA) between India and your country of residence may provide relief.
• 
  Broker commissions are taxable as business income in India. 

  • If the broker is in India and earns commission from the transaction, this income is taxable as business income in India.
  • If the broker is facilitating the sale but the cryptocurrency itself is not held in India, complications may arise regarding source-based taxation.

  
  
  
  

- Under which section TDS has been deducted?

- How you can say that no TDS has been deducted for the buyer of VDA in case of exchange of VDA? 

• CoinDCX acts as an intermediary and routes orders to Binance or Huobi when you trade in USDT pairs. Since the counterparty (seller) is a foreign trader, their income is not considered Indian income. However, TDS is being deducted only from your side (the buyer) in USDT pairs, whereas in INR pairs, it is deducted from both buyer and seller.
  
  
  
• Since the seller is not an Indian taxpayer, CoinDCX has no authority to deduct TDS from their earnings. If CoinDCX were directly executing the order on their exchange (not through Binance), TDS should ideally be deducted from both buyer and seller. However, in USDT pairs, CoinDCX is merely facilitating the trade on Binance, so they do not control the seller’s taxation.
  
  
  
• If you were not an Indian tax resident in FY 2022-23, then your income from crypto trading on Binance (via CoinDCX) might not be taxable in India under the principle of source-based taxation. However, CoinDCX follows a blanket approach, applying TDS deduction on all trades, irrespective of residency. As an NRI, you may be eligible to claim a refund of the TDS deducted when filing your income tax return in India, provided you do not have any taxable income in India.
  
  
  

• You could argue that:

  • Your income does not originate from India since you are transacting with foreign counterparties.
  • TDS should be waived for NRIs trading in USDT pairs, or at least be refundable upon filing returns.
  • CoinDCX should not deduct TDS for foreign transactions routed through Binance, as they are merely facilitating the trade and not directly providing counterparty services.
    
    
    

• I think you can seek clarification from Coindcx-  Raise a query to them asking why TDS is deducted in USDT pairs when the seller is not an Indian tax resident.