Trading Volumes Dip by 90%, Affecting Indian Cryptocurrency Exchanges

The cryptocurrency arena touched $3 trillion towards the end of 2021. The Game of Stablecoins was the major venue for trading. Crypto enthusiasts were hopeful. Maybe, they could expect greater progress in 2022? However, what followed was a terrible disaster. Halfway into 2022, the virtual currencies world is facing a terrible winter. Global market capitalization has gone below $1 trillion. 

However, some geographical locations are suffering more than others. One of them is India.

Reduction in Indian Trading Volumes

The Indian Government’s Ministry of Finance had made an announcement in the Union Budget. It would tax cryptocurrencies from April 1, 2022. Furthermore, the tax rates would be high. 

As per-discussed, the taxation laws took effect on April 1. However, it had an adverse effect on the trading volumes at Indian crypto exchanges. Currently, the drop has gone down as much as 90%-95%. 

This has happened within three months of enforcement of taxation laws. The revenue from trading fees is around $1,000-$3,000. 

Certain tweets on Twitter have provided more information. WazirX exchange has witnessed a dip of 98%. ZebPay is down by 94%. CoinDCX has reduced volumes by approaching 93%. The only cryptocurrency exchange that seems unaffected is Bitbns. It exhibits a small dip of only 17%. Regardless, the statistics throw a damper on a hitherto booming crypto business!

New Crypto Taxation Laws

Cryptocurrencies are virtual digital assets or VDAs.

As per Indian laws, a 30% tax would be levied on income derived from transfers of digital assets. There would be no exemptions/deductions. Even gifts of digital assets would receive similar treatment.

Outlined below are the details of the novel laws.

1. Sales of digital currencies would incur taxation of 30%. It would have an impact on post-tax returns related to cryptocurrency transactions. Then again, losses could not be set off against other sources of income.
2. Suppose, an investor bought digital currencies worth INR 15k (cost of acquisition). Selling it for INR 45k (sale of consideration) would result in a profit of INR 30k. The only arena to be taxed would be the gain, which is INR 30k. Thus, the income tax @ 30%, would be INR 9k.
3. The TDS on transactions involving cryptocurrencies, would be at the rate of 1%, from July 1, 2022. The Reserve Bank of India is responsible for enforcing this rule. The enforcement is in alignment with the Income Tax Act’s Section 194S. It is also in alignment with the Finance Act of 2022. Sums going beyond INR 10,000 per year, are eligible for taxation.
4. It is also possible to claim a TDS refund on a transaction leading to loss. Around INR 50,000 per year, suffices for the TDS limit. 
5. Individuals/Hindu Undivided Families (HUFs) would have to invite audits of their crypto accounts. This is compulsory under the Income Tax Act. 
6. No deductions are permitted, regarding allowance/expenditure. Only the cost of acquisition will be considered for deduction.

Global Feelings Regarding Cryptocurrencies

India is not the only one facing difficulties. The rest of the globe is also taking measures to confront the crypto winter. 

For instance, Vauld is a corporation based in Singapore. It is a digital currency exchange. It has gone in for halting various operations. They include depositing/trading/withdrawing them. However, Vauld also made another announcement. It is in consultation with its legal and financial consultants. They are discussing all possibilities regarding transformation. 

The crypto marketplace’s monetary concerns prompted Vauld’s decisions. However, they are protective measures only. There is no lack of money.

Opinions of Indian Cryptocurrency Enthusiasts

Several experts believe it is too soon to comment on anything. Trading volumes do not account for much during weekends. Therefore, it would be impossible to judge the complete impact of the new laws. Instead, they would prefer to wait and watch.

Others take the new TDS rules as a step in the right direction. They feel that investors will become more confident now. They will know what taxes to pay and continue. Similarly, entrepreneurs would be able to conduct their businesses fearlessly.

Of course, there are skeptics too. They believe that investors promoting India as a crypto hub will be discouraged. Additionally, transaction volumes would continue to decrease. Therefore, even the government would be unable to collect massive tax revenues.