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The trading volumes on Indian cryptocurrency exchanges, which were already on a downward trend, have dipped further since the 1 per cent Tax Deducted at Source (TDS) kicked in from July 1. While some exchanges have welcomed the regulatory move and believe it will boost investor confidence, some others anticipate that investors will be discouraged as trading volumes will take a sharper hit.
In addition to the 30 per cent tax on crypto gains, trades will now be subject to a 1 per cent TDS. Citizens selling their tokens — bitcoin, ethereum, dogecoin, solana and others — will receive 1 per cent less the value of the assets at the selling price. In effect, this is expected to have an impact on traders’ and short-term investors’ capital.
“The trading capital will be eroded over the course of the year with 1 per cent of the value being withheld on every trade, even if it can be recovered by filing returns,” said Smit Khakhkhar, tech diligence, Delta blockchain fund. As a result, the trade volumes will decline.
Down over 75%
Data from aggregator nomics.com show that trading volumes at WazirX and CoinDCX — two of India’s prominent crypto exchanges — have slumped by over 75 per cent since July 1. WazirX’s trading volume plunged to $3.02 million on July 2 from $14.53 million on June 30. Similarly, CoinDCX’s volume, too, went down from $2.62 million on June 30 to $835,135 on July 2. At their peak, the two saw combined daily volumes of over $200 million in 2021.
Insights from crypto research firm CREBACO show that rupee deposits have been delayed in the recent week due to TDS implementation, and deposits are getting processed slowly as compared to before.
Amanjot Malhotra, Country Head, Bitay, said, “The TDS levy is a modern instance of a tax provision that would be highly detrimental to the crypto industry. The tax provision will not only discourage innovators who have been doing a great job in promoting India as an innovative hub for the industry, but the government too will be at a loss as they will lose out on the possibility to earn massive tax revenue due to the overall decreased transaction volumes.”
‘Boosting investor confidence’
However, Indian exchanges at large have complied with the government’s direction and formed the necessary procedures for execution. Some even believe the regulatory move will boost investor confidence. Rajagopal Menon, Vice President, WazirX, said, “The new update will ensure that tax deductions are transparent to keep users informed of taxation throughout the crypto-buying experience. Set processes are in place to collect TDS for relevant transactions.”
“Investors can trade now with confidence by paying applicable taxes and crypto entrepreneurs in India can conduct their business without any fear,” said Shivam Thakral, CEO, BuyUcoin, a crypto exchange. It will be interesting to see the crypto TDS saga unfold as this will be the first time crypto transactions will be formally monitored by the tax authorities, he added.
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