Zerodha Co-founder Nithin Kamath Raises Concerns About Cryptocurrency Tax Rules on Social Media
Nithin Kamath, co-founder of Zerodha, recently used the social media platform X (formerly Twitter) to highlight the inconsistent taxation of cryptocurrency transactions.
Kamath noticed an advertisement for a cryptocurrency Futures and Options (F&O) exchange, which prompted him to post his concerns. He pointed out that while the Securities and Exchange Board of India (SEBI) is working to restrict F&O trading, a crypto F&O ad appeared on the front page of the Economic Times. Kamath emphasized that these crypto platforms claim the 1% Tax Deducted at Source (TDS) rule, which applies to regular cryptocurrency transactions, does not apply to crypto F&O transactions. He urged the Finance Ministry and Nirmala Sitharaman to investigate this discrepancy.
SEBI’s New Circular and Its Impact
Kamath also commented on a recent circular issued by SEBI, which will eliminate the rebates brokers receive from stock exchanges based on overall turnover. He explained that SEBI’s new rules require market infrastructure institutions, like stock exchanges, to be transparent about their charges. This change will significantly affect brokers, traders, and investors.
Kamath noted that stock exchanges charge transaction fees based on brokers’ total turnover. The difference between what brokers charge their customers and what the exchange charges the brokers is a rebate, which brokers keep. These rebates are common globally and account for about 10% of Zerodha’s revenue and up to 50% for other brokers. With SEBI’s new circular, this revenue stream will disappear.
Impact on Zerodha’s Brokerage Model
Kamath explained that Zerodha was one of the last brokers offering free equity delivery trades, subsidized by F&O trading revenues. Due to the new SEBI rules, Zerodha will likely need to end its zero brokerage structure or increase brokerage fees for F&O trades. Kamath added that brokers across the industry would need to adjust their pricing models in response to these changes.