Indian Crypto Exchanges Succumb to New Tax Rules, Volumes Fall

Key insights:

• Three Indian crypto exchanges – ZebPay, WazirX, and CoinDCX – witnessed volume falling over 60%.
• The drop follows the announcement of a 1% TDS per transaction, imposed on July 1.
• The slump is slowly recovering on Tuesday since hitting lows but is still struggling at 56% on average.

Trading volumes from Indian crypto exchanges have evaporated as much as 63% since Friday, following the imposition of a 1% tax deducted at source (TDS).

Cryptocurrencies and non-fungible tokens (NFTs) are unregulated in India, and the digital assets were subject to 30% income tax from April. On top of that, the government has announced a 1% TDS for trading cryptos, effective July 1.

Per a detailed guideline on crypto-assets issued by the Central Board of Direct Taxes (CBDT) on June 22, the TDS would be levied on crypto transfers exceeding the value of Rs 10,000 ($126) in a year.

Trading volumes plummet

Notably, crypto trading volumes at Indian exchanges – ZebPay, WazirX, and CoinDCX – have plunged to the new tax tune. Since Friday, the three exchanges has suffered slumps of between 60% and 87%, according to CoinGecko data.

CoinDCX had a sharp fall from $9.9 million to as low as $817,593 on Sunday, while Binance (BNB)-backed crypto exchange WazirX (WRX) saw a decline of more than 63% post the July 1 announcement.

Speaking to Bloomberg, WazirX Vice President Rajagopal Menon said,

“While long-term crypto holders are still buying and selling, market makers and high-frequency traders are gone.”

He also noted that traders are migrating to decentralized exchanges. This is mainly because transacting on decentralized exchanges can avoid tax implications due to their business model. However, it could not be legally tenable.

Additionally, the exchange revenues seem shocking due to the low trading levels. A crypto YouTube Chanel in India tweeted “tough times ahead” due to the appalling situation.

Indian Crypto exchange's trading volume have plunged by 90-95% , 3 months after new crypto laws became applicable.

Based on current volumes – Exchanges are only able to generate trading fee revenue of $1000 to $3000 Max.

Bitbns seems to be still doing well.

Tough times ahead. pic.twitter.com/KNDbea9BCn

— Crypto India 🔑 (@CryptooIndia) July 4, 2022

The CBDT’s guidelines mention four primary virtual digital assets (VDAs) or cryptocurrencies – bitcoin (BTC), ether (ETH), USD Tether (USDT), and USD Coin (USDC) – for the purpose of tax deductions on lesser-known cryptocurrencies.

The tax would be in effect for three months as a testing phase in order to determine how it impacts the crypto market.