Tax Question Remains
At the same time, India’s tax rules remain a major challenge for traders. The Income Tax Department levies 30% tax on VDA gains and a 1% TDS on certain transfers.
It should be noted that the higher NR value of $USDT does not necessarily mean a lower tax bill. The trader will be subject to the same tax rates under the current rules. This means that a weaker rupee can lead to an increased sum in INR, while the tax rate remains unchanged.
For example, the value of 10,000 $USDT may go up from ₹9 lakh to ₹10 lakh when the rupee moves from ₹90 to ₹100. But this increase will not reduce the trader’s tax liability. He would still need to pay the applicable tax when converting the $USDT balance.
A Bigger Withdrawal Does Not Mean Bigger Crypto Profits
Interestingly, the $USDT trader will not make an additional crypto profit just because of the weakening dollar. The change is only because of the INR-$USDT exchange rate. If a trader holds 10,000 $USDT, the balance remains the same, no matter whether the rupee is at ₹90, ₹96, or ₹100.
The change in the value of INR becomes important when withdrawing the profits. When the rupee is at ₹90, the $USDT balance will be converted to ₹9 lakh, and it may increase to ₹10 lakh when the rupee weakens to ₹100. This additional ₹1 lakh is a result of the rupee weakening, rather than a rise in the trader’s $USDT holdings.
Indian Traders May Watch the Rupee-$USDT Gap Closely
Notably, the rupee’s change in value against the USD could be important for traders who keep their crypto profits in $USDT instead of converting them immediately into INR. When they continue to hold the stablecoin, its INR conversion amount could rise if the rupee weakens. When they eventually withdraw the amount, they could receive more cash in INR.
This means that Indian traders holding $USDT will keep a close eye on the Rupee-$USDT gap. They will frequently check the value of the rupee and the $USDT-INR conversion rate to book the maximum profit.
Related: India’s $136B Dollar Cushion Isn’t Free: What the FCNR Boom Means for the Rupee and Crypto Traders