As the Reserve Bank of India (RBI) continues to impose restrictions over virtual assets, many crypto exchanges are trying peer-to-peer (P2P) deals from cryptocurrency traders.
In a peer-to-peer deal, the exchange receives an order from a buyer and then shares the seller’s bank account details with the buyer. With an online payment option, the buyer then directly transfers the amount to the seller and the seller transfers the cryptocurrency from their wallet to the buyer’s crypto wallet.
The money does not exactly transfer through exchange as the exchange simply connects the buyer and seller.
A crypto exchange official revealed, “This is not how an exchange should be functioning. It’s certainly less efficient. But apparently there is no violation of any regulation or law. It’s a simple money transfer from A to B over net banking or IMPS or NEFT, and it’s happening outside the exchange.”
On the other hand, reports reveal other exchanges receive funds directly in their current accounts from crypto buyers. Once the money is sent, the amount is credited to the trader’s account with the exchange. These funds can be used to purchase cryptos.
The exchanges are forced to go for an alternative payment option. This is because the payment firms are refusing to partner with crypto exchanges, possibly taking indications from the RBI.
This move comes in view of the recent curbs faced by crypto exchanges. Following which, Coinbase suspended UPI mode on its application within three days of its roaring launch in India.
In a similar episode, CoinSwitch Kuber had also temporarily disabled its direct deposit service via UPI on its app, anticipating more clarity from the government on crypto assets.
Besides the payment hurdle, the crypto community has to also deal with 30% tax. Experts believe that as per the law, the buyer has to pay the amount. Thus, in a P2P deal, a buyer has to debit the amount before crediting it to the seller’s account.
In normal situations, when there are no payment restrictions, tax officials will accept that exchanges perform the function as long as the TDS is paid. But that leads one to wonder about trades on international exchanges. For instance, how would the TDS be accounted for?
As per crypto investors, some of the big-shot traders have already chosen exchanges overseas for that purpose. Even though, according to banks, shifting money abroad to buy cryptos is considered as a violation of exchange’s control regulations.
Another banking expert said, “Some are using the hawala route to remit money. Others are using LRS to transfer funds to NRI relatives, who subsequently invest in cryptos.”