The disputed tax regulations of India have “crippled” the cryptocurrency business as of 2022.
A recent report from the Esya Centre in Delhi, which is a think tank for technology policy, says that since India announced a 30% tax on cryptocurrency income in February of last year, Indian cryptocurrency investors have moved more than $3.852 billion (INR 32,000 crore) worth of digital assets from domestic crypto exchanges to international crypto exchanges.
In the first six months of the current fiscal year, $3,055 million was offshored, according to the research. It also said that “an estimated 17 lakh customers migrated” from local crypto exchanges to their international counterparts.
According to reports, the Indian government published its cryptocurrency tax policies in the first quarter of 2021, imposing a 30% tax rate on income from crypto transactions. On every cryptocurrency transaction redemption, the nation also disclosed a 1% tax deduction at source (TDS).
When the news first came out, many people in the industry were optimistic, saying that the new law would clear up any confusion about crypto assets for banks and other financial institutions and allow them to offer financial services to the cryptocurrency business.
However, according to new research from the Esya Centre, the Indian virtual digital asset (VDA) market is “crippled under the current tax architecture.” It stated that under the current system, all cryptocurrency users in India would switch to overseas exchanges.
Experts have observed that the 1% tax has reduced the liquidity of cryptocurrencies in India by forcing high-frequency traders to drastically scale back their trading in an effort to cut taxes. According to the report, domestic exchanges lost 81% of their trading volumes in the four months following the implementation of the hotly contested 1% TDS rule. It added:
“We anticipate a commensurately large negative impact on tax revenues, as well as a decrease in transaction traceability – which defeats the two central goals of the existing policy architecture. “The current tax architecture may lead to a loss of approximately $1.2 trillion of local exchange trade volume in the next four years.”
The think tank recommended that Indian officials reduce the transaction-level TDS from 1% to 0.1%, bringing it into line with the securities transaction tax. Additionally, they suggested using progressive gains taxes rather than a flat 30% tax rate.
In Chainalysis’ 2022 Global Crypto Adoption Index, India came in at number four with a staggering $172 billion in cryptocurrency transactions between July 2021 and June 2022. Due to the nation’s expanding Web3 environment, investment interest has also increased.
India has always maintained a negative attitude toward cryptocurrencies, contending that the emerging asset class is worthless. Shaktikanta Das, the governor of the Reserve Bank of India (RBI), demanded that the nation outright outlaw cryptocurrencies only a month ago.