Shalini Nagarajan

<div id="highlights-block_62c41f60368f0" class="highlights">
 <ul>
 <li>Local investors shouldn’t move to foreign crypto exchanges to skirt local taxes, WazirX’s CEO said</li>
 <li>Companies dependent on transaction fees could revise revenue forecasts, a crypto exec told Blockworks</li>
 </ul>
 
</div>



Trading volumes on Indian crypto exchanges plummeted after a <a href="https://cms.blockworks.co/india-clarifies-crypto-taxes-as-trading-volumes-crater/" target="_blank" rel="noreferrer noopener">contentious tax policy</a> came into effect on Friday.



Top exchanges including <a href="https://www.coingecko.com/en/exchanges/wazirx#statistics" target="_blank" rel="noreferrer noopener">WazirX</a>, <a href="https://www.coingecko.com/en/exchanges/zebpay#statistics" target="_blank" rel="noreferrer noopener">ZebPay</a>, <a href="https://www.coingecko.com/en/exchanges/coindcx#statistics" target="_blank" rel="noreferrer noopener">CoinDCX</a> and <a href="https://www.coingecko.com/en/exchanges/bitbns#statistics" target="_blank" rel="noreferrer noopener">BitBNS</a> saw volumes drop between 10% to as much as 70% in the last week, according to data from CoinGecko. 



CoinDCX saw the biggest nosedive, with volumes down from roughly $6 million on June 28 to just about $2 million on Tuesday — a 70% drop. WazirX’s trading volumes fell by a similar level, while BitBNS and ZebPay had relatively smaller decreases.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Indian Crypto exchange&#39;s trading volume have plunged by 90-95% , 3 months after new crypto laws became applicable. Based on current volumes &#8211; Exchanges are only able to generate trading fee revenue of $1000 to $3000 Max. Bitbns seems to be still doing well. Tough times ahead. <a href="https://t.co/KNDbea9BCn">pic.twitter.com/KNDbea9BCn</a>&mdash; Crypto India 🔑 (@CryptooIndia) <a href="https://twitter.com/CryptooIndia/status/1543884371395891206?ref_src=twsrc%5Etfw">July 4, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The fall in volumes cannot entirely be attributed to India’s crypto tax laws taking effect. A combination of falling cryptoasset prices, liquidations and financial struggles of key crypto players, soaring inflation and the anticipation of a recession have all resulted in the current “crypto winter.”



Even so, crypto executives in India had warned the central authority’s decision to impose a 1% tax deducted at source (TDS), above a flat 30% tax on crypto profits, would discourage investors from trading in digital assets.



Nischal Shetty, CEO of WazirX, said on <a href="https://twitter.com/NischalShetty/status/1543939846879707136" target="_blank" rel="noreferrer noopener">Twitter</a> that investors in India shouldn’t be flocking to foreign crypto exchanges as a way to sidestep local tax laws. “There has been misinformation spread by some that trading on foreign exchange does not attract TDS. That is incorrect,” he said.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">1/Something important for Indian crypto traders to understand • Trading on foreign exchanges that don’t deduct TDS would mean YOU have to pay TDS directly to Income Tax Department • You need to know PAN of the seller on international exchanges • May be asked to pay 20%…&mdash; Nischal (Shardeum) ⚡️ (@NischalShetty) <a href="https://twitter.com/NischalShetty/status/1543939846879707136?ref_src=twsrc%5Etfw">July 4, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Further, investors shouldn’t expect the 1% TDS to be altered this year, according to Khaleelulla Baig, co-founder of Singapore-based KoinBasket.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“It’s important that the government should soon look at revising the guidelines to encourage entrepreneurship in the Web3 sphere,” he said in an email.</blockquote>



Before the 1% TDS kicked, CoinSwitch CEO Ashish Singhal told Blockworks cryptocurrencies should be taxed at par with equity markets.



“The crypto market is driven by high-frequency traders, like intraday traders in equity markets. These traders operate on extremely thin margins, and locking up their capital with high TDS will restrict their ability to operate,” he said.



Sinking trading volumes could have a direct impact on the revenue streams of these companies, possibly prompting them to lay off workers in an industry already grappling with <a href="https://cms.blockworks.co/crypto-industry-layoffs-may-have-unintended-consequences/" target="_blank" rel="noreferrer noopener">high employee turnover</a>. 



“Transaction volume in the crypto space has collapsed,” Manuel Ortiz-Olave, co-founder of equity tokens business Brickken, told Blockworks via Telegram. “This implies that companies dependent on transaction fees (i.e. exchanges and similar) will see a major revision of revenue forecasts, which will drive cost restructuring decisions.”



Companies building on top of blockchain technology-providing services, that aren’t intrinsically linked to the performance of cryptocurrencies, will do better in comparison, he added.



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Indian Crypto Trading Volumes Plunge as New Tax Rules Kick In

<div id="highlights-block_62b5a9c90ec2b" class="highlights">
 
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India’s central tax authority has issued clarifications around its decision to execute a <a href="https://cms.blockworks.co/indias-crypto-tax-takes-effect-with-industry-fearing-it-will-stifle-growth/" target="_blank" rel="noreferrer noopener">1% tax deducted at source</a> (TDS), on top of a 30% tax on cryptocurrency profits. 



With around <a href="https://www.cnbctv18.com/cryptocurrency/around-15-20-mln-people-in-india-hold-crypto-assets-worth-4-5-billion-wazirx-11579692.htm" target="_blank" rel="noreferrer noopener">20 million</a> people owning cryptocurrency in the country, there has been immense uncertainty around how virtual assets will be treated under taxation rules. The Central Board of Direct Taxes is now attempting to clear away this confusion.



According to a <a href="https://incometaxindia.gov.in/communications/circular/circular-no-13-2022.pdf" target="_blank" rel="noreferrer noopener">notice</a> issued Wednesday, new rules state that exchanges will have to deduct taxes from cryptocurrency buyers during each transaction above certain thresholds. This tax will have to be paid to the central government within 30 days from when the deduction was made. The 1% TDS comes into effect on July 1, 2022.



When the decision to impose a 1% TDS on cryptocurrencies was first announced, the crypto industry pushed for a <a href="https://www.livemint.com/market/cryptocurrency/crypto-industry-wants-govt-to-lower-tds-on-transactions-11652188608890.html" target="_blank" rel="noreferrer noopener">reduction</a> in the range of 0.01% to 0.05% on fear of the impact on retail traders.



According to CoinSwitch CEO Ashish Singhal, cryptocurrencies should be taxed at par with equity markets. He believes prohibitive taxes are likely to unsettle investors and expose them to possible losses.



“TDS is to provide a tax trail. A lower TDS can do so without driving users out of KYC-compliant platforms,” Singhal told Blockworks.



“The crypto market is driven by high-frequency traders, like intraday traders in equity markets. These traders operate on extremely thin margins, and locking up their capital with high TDS will restrict their ability to operate,” Singhal added.



Nicola Massella, head of Legal at STORM Partners, agreed that the 1% TDS may be a competitive disadvantage for local actors.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“The crypto space, by its nature, is transnational and borderless; this tax could push Indian users away from the exchanges of services providers in their home country, damaging the Indian economy,” she told Blockworks.</blockquote>



In the case of direct transactions between a buyer and seller, the person paying the consideration (or the buyer) will be required to deduct taxes. TDS must also be paid for transactions done in kind.



Further, if transactions involve an exchange of one virtual currency for another, then both parties will be considered buyers and will each have to pay taxes. They will need to show evidence of tax payment before the virtual asset exchange can take place.



The TDS liability applies only when the aggregate value of the consideration exceeds 50,000 INR ($638) in the case of a specialized individual and 10,000 INR ($127) in other cases.



“Since the threshold of fifty thousand rupees (or ten thousand rupees) is with respect to the financial year, calculation of consideration for transfer of VDA triggering deduction under section 194S of the Act shall be counted from 1st April, 2022,” the tax authority said.



India’s latest tax rules come as both equities and cryptocurrencies remain on shaky ground after weeks of weakness. Bellwether asset bitcoin is up 3% in the last week, but is down 55% so far this year, according to data from <a href="https://www.blockworksresearch.com/assets/btc/" target="_blank" rel="noreferrer noopener">Blockworks Research</a>. It last traded around $21,200.



India’s controversial 30% tax on cryptocurrency profits came into effect in April. The initial announcement of this tax on capital gains <a href="https://economictimes.indiatimes.com/tech/technology/volumes-on-crypto-trading-platforms-decline-as-new-tax-norms-come-into-effect/articleshow/90643153.cms" target="_blank" rel="noreferrer noopener">hurt</a> trading volumes on platforms in the country by as much as 70%.



It isn’t clear whether the provisions laid out by the authority apply to foreign crypto exchanges. The CBDT is expected to issue a separate set of Frequently Asked Questions to clear up any other confusion related to the tax regime.



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India Clarifies Crypto Taxes, as Trading Volumes Crater

<div id="highlights-block_6299e4fe84c1f" class="highlights">
 <ul>
 <li>The CRE8 index measures the performance of the Indian crypto market in rupees, rather than US dollars</li>
 <li>Dollar-denominated crypto indexes aren’t accurate representations for Indian investors, CoinSwitch’s CEO said</li>
 </ul>
 
</div>



Indian cryptocurrency exchange CoinSwitch on Thursday launched the country’s maiden benchmark altcoin index to track the performance of the rupee-based crypto market.



Based on real-time transactions on the CoinSwitch app, CRE8 — the <a href="https://coinswitch.co/blog/coinswitch-cre8/" target="_blank" rel="noreferrer noopener">Crypto Rupee Index</a> — tracks eight of the most highly-traded cryptocurrencies in the Indian market: bitcoin, ether, BNB, XRP, cardano, solana, polkadot and dogecoin.&nbsp;



“The index addresses a gap in the market. Until now, Indian users had to rely on international [indexes] denominated mostly in US dollars to assess the market,” Ashish Singhal, co-founder and CEO of CoinSwitch, told Blockworks.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“These [dollar indexes], however, do not provide a true picture of the Indian market as they do not take into account the demand and supply specific to the Indian rupee-based market, nor the INR exchange rate.”</blockquote>



The index represents the total market value of all cryptoassets traded in the Indian market relative to a base date of October 1, 2020, and a base value of 1,000 Indian rupees ($12.90), rather than in US dollars. Data will be refreshed 1,400 times a day to ensure the latest updates for observers and will be amended to include new constituents each quarter.&nbsp;



The CRE8 index was last up 0.88% at press time, but is down 44% in the past 12 months.



In the US, investors can track various similar benchmarks, such as the <a href="https://www.spglobal.com/spdji/en/index-family/digital-assets/cryptocurrency/#indices" target="_blank" rel="noreferrer noopener">S&amp;P Cryptocurrency Index</a> and the <a href="https://www.nasdaq.com/crypto-index" target="_blank" rel="noreferrer noopener">Nasdaq Crypto Index</a>. Digital-asset investing firm CoinShares also maintains several <a href="https://coinshares.com/products-services/index-strategies" target="_blank" rel="noreferrer noopener">indexes</a> that track cryptoassets, designed to suit investors with distinct exposures.



Valued at nearly $2 billion, CoinSwitch is a prominent crypto exchange in India that is backed by investors including Andreessen Horowitz (a16z), Coinbase Ventures, Tiger Global and Sequoia Capital. It has 18 million registered users, according to company-provided figures.



Trading volumes in India plummeted <a href="https://www.coindesk.com/markets/2022/04/27/first-mover-asia-trading-on-indian-crypto-exchange-continues-to-slump-following-new-tax-laws-cryptos-higher/" target="_blank" rel="noreferrer noopener">as much as 60%</a> in April after the government <a href="https://cms.blockworks.co/indias-crypto-tax-takes-effect-with-industry-fearing-it-will-stifle-growth/" target="_blank" rel="noreferrer noopener">imposed a 30% tax</a> on crypto earnings, which some criticized as a drastic move that crushes the digital asset economy of the country.



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



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