Binance Booms As Crypto Tax Crushes Indian Exchanges

The cryptocurrency tax imposed by the Government of India has caused foreign exchange like Binance to consolidate its market share there.

The Binance app was the only one among the top exchanges to achieve higher downloads last month than in July, according to data from market intelligence firm Sensor Tower.

Almost tripled the number of other CoinDCX, Binance app downloads in India totaled 429,000 in August, the highest so far this year.

However, the operator of the world’s largest crypto exchange is rather an exception to the prevailing market conditions, where competitors have been hampered by the difficulty of moving money in and out of trading venues, in addition to the recent tax burden.

Since the 1% tax on crypto transactions, known as TDS, was introduced in July, daily volumes on key India-based platforms have plunged 90%.

Tax loophole

Although Binance offers a number of more unique features, such as easier exchange between tokens and cash, the crypto treasure is really at the heart of its success.

While many platforms of Indian origin have started deducting the fee, other foreign rivals such as Binance and FTX have not. This caused many to switch to their platforms, according to anonymous Bloomberg sources.

As traders are drawn by what can be perceived as a loophole, others may be drawn to if the law applies to more complex transactions.

“The recent tax regulation is not explicitly clear on whether the 1% tax deducted at source extends to crypto derivative transactions involving futures, as it does to crypto spot transactions,” said Rohan Misra, managing director of Switzerland-based SEBA Bank’s Indian subsidiary.

Regarding whether Binance had started collecting the fee, a spokesperson said they are “currently monitoring the situation and will make further announcements in due course.”

According to Anoush Bhasin, the founder of crypto-asset tax advisory firm Quagmire Consulting, the responsibility falls on the seller of the digital token when an exchange does not set aside the fee.

TDS effects

On top of the TDS law came a new 30% tax on gains from the transfer of crypto assets earlier this year, much higher than most other jurisdictions. The rules introduced this year also prohibit offsetting crypto trading losses against income.

Still, as Binance has managed to flourish, the introduction of the tax has taken its toll on most other exchanges operating in India. For example, Coinbase Global, which said it complies with tax rules for crypto transactions, saw downloads in India drop from nearly 31,000 in June to 16,000 in August.

Runner-up CoinDCX fell from 2.2 million downloads in January to 163,000.

Meanwhile, FTX, which had reportedly not started deducting the fee, also saw downloads in India drop from 96,000 downloads in India in July to 52,000 in August. Another reason for Binance’s rise could be some publicity from a recent scandal.

Amid an investigation following the suspension of withdrawals on WazirX, Binance distanced itself from the domestic exchange, saying it had never followed through on its acquisition, which was announced in 2019.

This led to Binance CEO Changpeng Zhao encouraging WazirX customers to jump to Binance, with WazirX’s monthly downloads falling to 92,000 in August from around 596,000 in January.

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