Indians moved over $3.8 billion in cumulative trading volume from local to international crypto platforms as a reaction to strict crypto tax rules announced on February 1, 2022. According to research by the Esya Centre, a technology policy think tank from New Delhi, a total of INR 32,000 crore (approx. $3.852 billion) was transferred out in the period from February to October 2022.
The study is the first to estimate the financial impact of India's new regulations that imposed a 30% tax on crypto profits, effective from April 1, 2022, and a 1% tax deducted at source (TDS) on all transactions, effective from July 1, 2022. Experts from the Esya Centre found that in just four months since the implementation of the 1% TDS local platforms lost 81% of their trading volumes to their offshore counterparts. In the authors' own words, the Indian virtual digital assets (VDA) industry "is crippled under the current tax architecture."
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According to the baseline future projection included in the report, almost all Indian centralized VDA users might move from local platforms to foreign exchanges. As a result, centralized exchange businesses would become "unviable in India." If the pro-market scenario prevails, the situation will return to normal. For that to happen, the three conditions need to be fulfilled:
- TDS on crypto is equal to that on securities,
- the government allows investors to set off losses against their income,
- taxes on gains are internationally competitive.
The report includes a crypto tax rules comparison with other countries. The regulations implemented by India are by far the least friendly for investors. No other country in the list applies TDS, only two don't allow setting off losses, and none applies 30% taxes for both long-term and short-term gains on crypto.
