The Regulatory Implications of India's Crypto Transaction Tax

India's introduction of new crypto taxes has had a negative impact on global trade, forcing entrepreneurs to move to friendlier jurisdictions.

The Indian crypto landscape lost momentum this year when the government introduced two laws requiring crippling taxes on unrealized crypto-related gains and transactions.

India's first crypto law, which requires its citizens to pay a 30% tax on unrealized crypto gains, came into force on April 1. A stir within the Indian crypto community ensued as investors and entrepreneurs tried to decipher the impact of the wave announcement with little to no success.

Knowing that India’s second crypto law – a 1% withholding tax deduction (TDS) on every transaction – would result in an even greater impact on trading activities, many Indian crypto entrepreneurs considered to move their bases to friendlier jurisdictions.

Following the imposition of additional taxes, Indian crypto exchanges have reported a massive drop in trading volumes. Data from CoinGecko confirmed that trading volumes on Indian crypto exchanges fell by an average of 56.8% as investors eyed offshore exchanges to cut their losses on ruthless taxes.

However, Indian Finance Minister Nirmala Sitharaman has previously acknowledged the resulting backlash and revealed his intention to reconsider the crypto-related tax amendments after careful consideration.

On-the-ground impact of crypto regulations in India

Just days after the implementation of India's infamous crypto laws, crypto exchanges in the region reported a massive drop in trading volumes. Nihal Armaan, a small crypto investor from India, told Cointelegraph that taxation is no deterrent when it comes to cryptocurrencies.

Instead, he likened the imposition of a flat 1% tax to a means of capital blocking, a feature used by companies to prevent investors from withdrawing their funds, adding that "the TDS is not the issue, the amount of TDS is - as this obviously reduces the number of transactions a person can make with their capital at hand.

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