The Central Board of Direct Taxes had on 21 June notified amendments in the I-T Rules under the newly-introduced Section 194S of the Finance Act, 2022. The amendments state that crypto exchanges will have to levy a 1% fee over and above a platform's own usage charge and the goods and service tax applicable on it. This fee would be levied if the annual transactions cross ₹10,000 for a general crypto user and ₹50,000 for individuals who are liable to get their accounts audited.

Details of the TDS will have to be furnished in Form 16E and Form 26QS, which contain annual tax deductions and will be computed alongside an individual's overall tax deduction for a fiscal year.

The application of the TDS aims to "streamline" the tax regime already in place for the sector "in the wake of a turbulent crypto market", said Rishi Anand, partner at law firm DSK Legal. This suggests that the clarity could help bring long-term investors back into the fold. Minal Thukral, executive vice-president of growth and strategy at crypto exchange CoinDCX, concurred. Once prices recover, "clarity on taxation may drive erstwhile fence sitters, both retail and institutional, to start investing again," Thakur said.

Sidharth Sogani, chief of crypto market research firm Crebaco Global, believes that the impact on high-frequency traders of the 1% TDS rate could drain the crypto market of liquidity, thus having a big impact in the long run. "Most liquidity providers in the crypto market have already backed out because of India's crypto policy, coupled with market prices right now. Investors who have entered crypto over the past 12-18 months are holding their purchases, because nobody wants to book a loss. When the prices come back up and people want to sell, there will be no liquidity for them to do so. The 1% TDS may not have a short term impact within the first 15 days from 1 July, but after, say, 45 days from when the tax is levied, the issues will become more apparent," Sogani said.