Since the new crypto tax law on April 1, trading volumes on several crypto exchanges in India have decreased by 15-55 percent.
The Impact of the New Crypto Law on Trading Volumes
The reduction in trade volumes throughout the country has prompted analysts to think that liquidity will suffer a similar fate. Even domain traffic on Indian crypto exchanges has dropped by 40%, showing that the crypto investment business is suffering due to the 30% tax imposed on this commodity. The 1% tax deducted at source law, which is set to take effect on July 1, is expected to impact liquidity.
For example, soon after the clock struck 12 and the new financial year began, WazirX, one of the country’s major crypto exchanges, saw its trade volume decrease from $208 million to less than $100 million.
According to Finance Minister Nirmala Sitharaman’s pronouncement, all crypto gains would be subject to a steep 30 percent tax. In addition to the substantial taxes, crypto transactions will be subject to a 1% TDS. The regulation also prohibits investors from balancing losses in one asset against profits in another, the last nail in the coffin. As a result, any losses sustained when investing in crypto, which remains a highly volatile asset class, will not be compensated by profits earned from other assets.
TDS Causes Liquidity Problems
The 1% TDS is the most common source of anxiety among investors concerned about market liquidity. This is because it will induce regular traders to lower the frequency of their transactions to minimize their losses, affecting the asset’s market liquidity.
Manhar Garegrat, the Executive Director of Policy at CoinDCX, another renowned crypto exchange in the nation, had this to say about the situation:
‘Global Consensus’ Is Still Awaiting
In India, the cryptocurrency market has been stagnant. Despite the Supreme Court overturning the RBI’s broad prohibition on cryptocurrencies in 2020, the market has yet to stabilize. The publication of the 2022 Budget provided investors with a regulatory framework on which to base their investment activity. However, the falling figures suggest that the market may need time to react to the new levies. On the other hand, the Modi government is still holding off on adopting a broad cryptocurrency regulatory framework, arguing that it is awaiting global agreement on crypto policy.