High taxes pushing investors out of crypto space? Well, that’s just the tip of the iceberg
The government implemented 30 percent flat taxation in gains from the sale of crypto assets from April 1, 2022, and imposed one percent TDS on all crypto transactions since July 1, 2022.
Market players believe that despite panic among crypto investors, the froth has settled and high tax rates are now sinking in among traders. However, the reluctance cannot end anytime soon.
Punit Agarwal, Founder and CEO, KoinX, said the tax framework was not something a crypto investor in India expected. For the trader who works with small percentages, TDS has reduced the volume of the funds.
“This is not the only reason for it,” he said. “There have been many factors that have resulted in the demise of the crypto industry in India, including geopolitical concerns, interest rate hikes by the US Federal Reserve and recession fears,” he added.
Pratik Gauri, co-founder and CEO, 5ire, believes that more than the tax regime, it is the complexity and calculation of taxes on VDAs that people fear. He also blamed the ban on offsetting losses in one crypto against gains in another as a concern.
At home, amid the lack of regulations, traders have been skeptical of the digital asset class following regulatory actions on exchanges such as WazirX. The bankruptcy of trading platform Vauld added to investors’ problems.
The biggest concern is the safety of the funds for an ordinary investor, and if that is called into question, it can certainly affect the crypto volumes in the country, said Agarwal of KoinX.
Indy Sarker, co-founder and director, TaxCryp, believes that regulatory actions and scrutiny of business practices at many exchanges have led to continued weakness in trading volume.
Tax uncertainty is still in play, but to a greater extent the turmoil in the industry has affected investors negatively, he added.
“Investor confidence has taken a big hit due to instances of regulatory scrutiny,” he said.
The market players do not see the old days of glory for the domestic investors until the dark clouds of scrutiny and regulations are cast on the crypto space. They are optimistic about the news flow to drive the sector forward.
The positive sentiments allow us to envision a future for crypto in the country; thus obviously leading to an increase in volumes as well. Right now, at least, it looks like we’re not that far off,” said KoinX’s Agarwal.
Lumping various VDAs into a single category for tax purposes will prevent investors from investing in them,” said Gauri of 5ire. “The Income Tax Act treats blockchain assets,
NFTs and other VDAs homogeneously, which should be treated differently based on the characteristics,” he said.
An investor should make a sound decision on the use case for each coin they create and avoid the FOMO trap. Long-term investments can actually benefit investors, but an understanding of the nuances and risks associated with it is necessary.
DeFi investments will come up for greater scrutiny in the coming days, while the interplay between CeFI and DeFi wallets will drive the quest for greater disclosure of the real identity of DeFi wallet holders, said TaxCryp’s Sarker.
