India’s Crypto Industry Faces Two-Year Wait for Lenient Tax Regime
The CEO of Indian exchange WazirX, Nischal Shetty, has stated that the country’s crypto industry may have to wait up to two years for a more lenient crypto tax regime. Last year, Indian authorities introduced a 1% Tax Deducted at Source (TDS) on cryptocurrency transactions, resulting in a significant decrease in trading volumes. This led market makers and high-frequency investors to reduce their involvement due to increased costs. In just 10 months, one local exchange reported a 97% drop in trading volumes at domestic exchanges due to this tax. Shetty expressed doubts about an immediate reduction in the TDS since there have been no formal discussions between the cryptocurrency industry and lawmakers.
India Playing Catch Up in Crypto Regulation
While India has called for a globally coordinated approach to cryptocurrency regulations, countries like Hong Kong, Dubai, and the European Union have already taken the lead by establishing their own regulatory frameworks. These efforts aim to protect investors and provide clarity for digital asset companies, some of which are considering expanding beyond the United States due to increased regulatory scrutiny. Despite the uncertainty, Shetty remains hopeful that India will take steps toward a more favorable crypto policy, although the specific measures have yet to be defined.
TDS Drives Indian Investors Away from Local Exchanges
The introduction of the TDS has pushed many Indian investors towards overseas-based exchanges instead of local crypto trading platforms. CoinDCX, a rival of WazirX, reported that Indian exchanges lost over 2 million users between February (when the tax was announced) and December of the same year. During this time frame, overseas platforms attracted more than 1.5 million customers from India.
“Purpose of Introducing TDS has Failed”
Kiran Mysore Vivekananda, Chief Public Policy Officer at CoinDCX, stated in an interview that the central government’s purpose of introducing the TDS has failed. The government implemented the direct tax on crypto to discourage people from investing in the asset class. However, crypto adoption in India has continued to grow. Vivekananda also highlighted that their data shows 18% of active users on the top five foreign exchanges are Indian. Additionally, a Chainalysis report ranks India as the leading country in adopting crypto on various parameters, with India’s crypto transaction volume reportedly being the second-highest in the world.
Hot Take: India’s Crypto Industry Faces Uphill Battle
India’s crypto industry is facing an uphill battle as it waits for a more lenient tax regime. The introduction of the 1% Tax Deducted at Source (TDS) on cryptocurrency transactions has led to a significant decline in trading volumes and pushed investors towards overseas exchanges. While other countries have made strides in regulating crypto, India is playing catch up and lacks formal discussions between industry players and lawmakers. The purpose of the TDS, to discourage crypto investment, has not been achieved as crypto adoption continues to grow in India. With uncertain prospects, the Indian crypto industry must navigate challenges to find a more favorable policy environment.
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