Crypto Exchanges in India: Impact of Tax Laws on User Base
Introduction
India’s crypto market has faced significant challenges since the implementation of a 30% tax on crypto gains and a 1% TDS on all transactions in 2022. This article explores the impact of these tax laws on the number of users on crypto exchanges in the country.
Impact on User Base
The policy paper released by the Centre for Tax Laws and NALSAR University of Law highlights a drop in active crypto exchange users in India by 81% in 2023 alone. Exchanges have reported cost-cutting measures due to the reduced number of investors.
Tax Regime Concerns
High Taxation: The 30% tax on crypto gains is significantly higher than in comparable countries like Ukraine, Canada, and the US.
Harsh TDS Law: India is the only nation with significant crypto activity to impose a 1% TDS on every transaction.
Lack of Loss Set-Off: India does not allow set-off and carry forward of losses, which is discriminatory compared to other industry sectors.
Impact on Government Revenue
The policy paper estimates that India could fetch Rs. 5,144 crores in capital gains tax by 2027 if crypto tax laws were revised. A reduction in the 1% TDS would increase government revenue, improve transaction monitoring, and reduce TDS refunds.
Government’s Stance
The Indian government has not publicly addressed the crypto tax laws or the demand to reduce taxes. Finance Minister Nirmala Sitharaman did not mention the crypto sector in her interim budget announcement.
Conclusion
The high taxes and TDS laws have negatively impacted the Indian crypto industry, leading to a drop in users on exchanges. The government’s silence on the matter is concerning, as it suggests a lack of understanding of the impact on investors and the potential for lost revenue. Revising the crypto tax laws could revive the industry and generate significant government income.