India’s crypto industry was “crippled” by the country’s controversial tax laws in 2022.
According to a recent one report from Esya Centera Delhi-based technology policy think tank, Indian cryptocurrency investors have moved more than $3,852 billion (INR 32,000 crore) of digital assets from local crypto exchanges to international exchanges. These transfers came as the country announced a 30% tax on cryptocurrency income.
“From this amount, a cumulative volume of $3.055 million has been transferred within six months of the current fiscal year“, the report said, adding that “about 1.7 million17 users have switched” from a national crypto exchange to a foreign equivalent.
The Indian government unveiled its plans to tax cryptocurrencies in early 2021, announcing tax gains from cryptocurrency transfers at a rate of 30%. The country also unveiled a 1% Withholding Tax (TDS) levy on all crypto transaction settlements.
Initially, the news was met with optimismas many industry veterans noted that the new laws would remove any ambiguity for banks and other financial institutions regarding crypto-assets, allowing them to provide financial services to the crypto industry.
However, the Esya Center report claims that India’s Virtual Digital Asset (VDA) industry is “paralyzed by the current tax architectureIt leaves speculation that all Indian crypto users will switch to foreign exchanges under the current structure.
Experts have pointed out that the 1% tax has hurt crypto liquidity in India, as it forces high-frequency traders to drastically reduce their trading in an effort to reduce the tax. The report further states that national stock exchanges lost 81% of their trading volumes in four months after the controversial 1% TDS rule was introduced.
“We foresee a proportionately large negative impact on tax revenues as well as a reduction in transaction traceability, which defeats the two main objectives of the current policy architecture. Thus, the current tax architecture could result in a loss of approximately $1.2 trillion in volume on local exchanges over the next four years.
The panel suggested that Indian officials raise TDS from 1% per transaction at the rate of 0.1%, which would put it at the same level as the securities transaction tax. They also recommended progressive taxes on profits instead of a flat tax of 30%.
India ranks fourth in cryptocurrency adoption determined by the 2022 Global Crypto Adoption Index of chain analysiswith $172 billion in cryptocurrency transactions between July 2021 and June 2022. The country has also seen growing investor interest in its growing Web3 ecosystem.
India has long maintained a tough stance on cryptocurrencies, claiming that the new asset class had no underlying value. Just last month, the governor of Reserve Bank of India (RBI), Shaktikanta Das, called on the country to completely ban cryptocurrencies.
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