Cryptocurrency Regulation Kickoff: India's Cryptocurrency Trading Tax Implemented, Trading Volume on Platforms Drops by 50%

After July 1, the Indian government implemented a new cryptocurrency trading tax law, in addition to the existing 30% capital gains tax, the most controversial 1% origin tax is also in effect. The government has started levying a 1% tax on all cryptocurrency buyers for transactions exceeding $126. As a result, the trading volume on several cryptocurrency exchanges has dropped by more than 50%.

Indian Cryptocurrency Tax Laws

In March, it was reported that there were two significant changes in cryptocurrency taxation in India under the budget proposal led by Indian Finance Minister Nirmala Sitharaman.

1. 30% Capital Gains Tax

Any profits from cryptocurrency transactions are subject to a 30% tax. The 30% tax is levied on the entire profit without allowing for any deductions or discounts from the cost of acquisition, and any losses cannot be offset against the gains.

Previous reports suggested that gifts or virtual assets, including NFTs, may also fall under the taxable bracket, but the updated proposal on 6/30 has exempted them.

2. 1% Tax Deducted at Source (TDS) on Transactions

A 1% TDS is imposed on all cryptocurrency transactions exceeding $126 (10,000 INR). Exchanges are required to deduct a 1% transaction tax from the buyer and remit it to the Indian government.

Tax Deducted at Source (TDS) refers to the deduction of tax from the payable amount by the buyer before remitting the balance to the seller, thus enabling the government to tax the transaction at the source rather than solely on capital gains.

Sellers can set off the 1% TDS against their total tax liability of 30%.

This has led to a significant decrease in trading volumes on Indian exchanges like WazirX, ZebPay, and CoinDCX, ranging from 30% to 50%.

Sharp Decline in Indian Cryptocurrency Trading Volumes

Data from Nomics shows the following changes in trading volumes since 6/30:

• WazirX: $14.2 million – $4.69 million -66.9%
• CoinDCX: $2.59 million – $1.69 million -34.7%
• ZebPay: $2.77 million – $1.75 million -36.8%

While the decrease in trading volumes may be significantly related to the bear market, Coin Dance data also indicates an increase in peer-to-peer exchange volumes post-June.

While taxation is often the first step towards compliance in the crypto space, it can be expected that industry participants will continue to engage in ongoing discussions with the Indian government regarding cryptocurrency taxation.