India's crypto trading volume dries up due to new tax
As the new 1% TDS on crypto trading kicked in on July 1, trading volumes of cryptocurrency have dried up in India. Several crypto exchanges, including WazirX, ZebPay, and CoinDCX have seen a 60-87% decline in trading volume since the tax came into force on July 1. The early signs show the fear of crypto exchanges coming to fruition.
- India's crypto industry is going through a difficult phase. The 30% tax levied on profits arising out of crypto transactions and the new 1% TDS has impacted the industry.
- These along with plunging prices as well as difficulty getting cash into exchanges are forcing market makers and high-frequency traders out of centralized exchanges.
Crypto exchanges had earlier warned that the TDS will erode trading volume. Binance-backed WazirX's trading volume dipped from $14.53 million on June 30 to $3.65 million on July 4. CoinDCX saw a decline from $2.62 million on June 30 to $1.31 million on July 4. Even BitBNS which fared better than its counterparts saw a 34% decrease in its trade volume from June 30.
The 1% TDS deduction on VDA (virtual digital assets) announced in the 2022-2023 Union Budget came into effect on July 1. Accordingly, 1% tax will be levied on all VDA transactions with a consideration exceeding Rs. 10,000. The obligation to pay the TDS falls on the person making the payment to the seller, including an individual buyer, an exchange, or a broker.
The contraction in crypto trading in India is not solely related to new taxes introduced by the government. The dip in volume experienced globally has also affected Indian exchanges. However, the sudden decline can be directly attributed to the TDS. Many fear that this may force traders to move to decentralized exchanges, which could be a heavy blow to the liquidity of centralized exchanges.
"It is still premature to predict the ramifications of TDS. We will be in a better position to understand this by the second week of July..." said Rajagopal Menon, Vice President of WazirX. Amajot Malhotra, the Country Head at Bitay, said that the new TDS rule would be "highly detrimental to the crypto industry."
Trading on foreign crypto exchanges does not absolve Indian traders of their TDS obligation. Since foreign exchanges do not deduct TDS, the responsibility falls on the Indian trader to pay the TDS.