TDS on crypto: Trading volumes get a hit
Days after the center introduced withholding tax (TDS) on virtual digital assets and cryptocurrencies for transactions over ₹10,000, trading volumes on major Indian stock exchanges have taken a massive hit.
Trading volumes on WazirX were down by approx. 83% on July 3, compared to the volumes registered on June 30, while the volumes on CoinDCX, ZebPay and Bitbns decreased by 70%, 76% and over 18%, respectively, according to data obtained from research provider Crebaco.
According to rules adopted by the central government, it is mandatory for a buyer to deduct 1% TDS on the amount to be paid to sellers of digital assets when the transaction amount exceeds ₹10,000.
Sidharth Sogani, Crebaco’s founder and CEO, told LiveMint that volumes have also fallen due to global, broader financial markets, and that India’s liquidity providers have retreated, leading to significant declines.
“I think there is more pain to come in the next 2-3 months, as factors such as an impending recession, and the war in Ukraine, only increase the negative emotions. The Government of India is doing nothing to help the space. Usually the government comes forward to help industries survive difficult phases. But the government wraps the crypto space in links and makes things difficult for the players. I’m not very positive about how things will take shape, but maybe in the near future we will have a better picture, said Sogani.
Raj Kapoor, founder of India Blockchain Alliance, said that collecting 1% TDS will not only discourage entrepreneurs and investors from developing the rapidly evolving industry, but that the government will also suffer losses as it will lose the opportunity to earn large tax revenues due to off to reduced transaction volumes in the room.
By providing statistics, he said that over 90% of users shop at least 10 times and over 80% shop at least 20 times in a month, and that the TDS implementation will affect not only the users but also the authorities.
“This will lead to the emigration of start-ups, entrepreneurs and professionals, further hampering the growth of a growing industry worldwide that has the potential to make a significant contribution to India’s stressed economy,” Kapoor said.
Rajagopal Menon, Vice President of WazirX, said: “We comply with the government’s directive on 1% TDS and the updates on our stock exchange and P2P platforms were published yesterday. The new update will ensure that tax deductions are transparent to keep users informed about taxation throughout the crypto-buying experience.
Experts also point out that crypto-investors are more likely to move away from KYC-compliant centralized exchanges, and much of the trading activity will eventually be conducted underground, making enforcement a difficult task for the tax authorities.
“Infection in crypto markets has driven investors away. Heavy tax and compliance regimes will increase investors’ emigration and make it more challenging to run a crypto business. People like Vauld struggle to stay afloat and have paused. This crypto winter is going to be more painful and longer. We can see more consolidation in space. Those with deep pockets like FTX will invest strategically in crypto devices, “said Sharat Chandra VP – Research & Strategy, EarthID.
Crypto trading and lending platform Vauld announced on Monday that it suspended withdrawals, trading and deposits on its platform, due to the financial challenges it faced due to unstable market conditions and financial difficulties to its business partners.
Ironically, the Singapore-based firm, with most of its employees in India, had claimed a few weeks ago that it had no exposure to Celsius or Three Arrows Capital and that it remained liquid despite market conditions.
