The volume of cryptocurrency trading in India has seen a decrease due to the new cryptocurrency tax law. This is indicated in data complied by Crebaco, a research company based in Mumbai, and Nomics, a crypto data generator.
The new law which came into effect on April 1, 2022, requires all traders to pay a 30% tax on gains made on virtual digital assets (VDAs). It permits no set-offs, carryovers, or deductions.
In addition to the 30% tax on gains, the Finance Minister also announced a 1% tax on digital asset transactions which surpasses a particular threshold at source.
This is to be implemented on July 1, 2022.
As per reports from Nomics, the volume of trading on Indian cryptocurrency exchanges like WazirX, ZebPay, and CoinDCS has seen a massive decline after the law came into effect.
Many cryptocurrency entrepreneurs believe that if the tax policy does not allow for deduction of expenses, it will reduce organized trading which will lead to the reduction of liquidity in the industry and stunt the growth of India’s virtual digital assets ecosystem.
From the data compiled by Nomics, it is seen that CoinDCX trading volume peaked between the last two days of the old tax law (March 30 and March 31) when it hit over $30m which was then followed by a massive decline down to around $10m.
WazirX also peaked in trading volumes during the same period, hitting over $120m, and then dropped back to less than $80m after April 1. Zebpay also hit more than $15m from March 30 to March 31 and dropped to less than $5m on April 1.
Speaking to a news agency, CoinDCX SVP, Growth and Strategy, Mina Thukral explained that the trading volumes went high on March 31 as investors prepared for the new financial year.
The decline which began on April 1 was a usual trend but the company saw a sharper decrease due to the new tax law this time around, explained Thukral.
The new tax policy could also change the trading behavior of the 15 to 20 million retail cryptocurrency investors in India.
There could be a decrease in betting on new coins and traders may choose to invest only in the top coins that have proven to be stable.
It could also result in the movement of investors to international exchanges and decentralized exchanges.
Crypto exchange experts further warn that there may be a greater effect on trading volumes when the 1% tax deduction at source kicks off in July.
Apart from the reduction in volumes, trading will become even more expensive as liquidity providers will likely pass the weight of the 1% tax to traders.
Cryptocurrency is currently used to make payments in various eCommerce sectors. Global companies like Microsoft, Amazon, Twitch, and Paypal accept payment in coins.
The online gaming sector is another area where crypto is used widely. Some of the best real money online casino sites accept numerous coins. Gamers also love to use crypto payments to stay anonymous when gambling online at these sites.
Many experts believe that buying crypto is set to become expensive in India due to the new law.
According to Sathvik Vishwanath, founder of Unocoin, Traders will be very careful about selling and buying to avoid being in loss.
