Exchanges in India have recorded a drop in trading volumes after the 1% tax at source (TDS) deduction was introduced for crypto assets on July 1, data firms confirmed.
Crypto data and research firms Nomics and Crebaco reported that KYC-compliant centralized exchanges took a steep hit in July, according to Business Today. Crebaco noted that trading volumes on WazirX declined by 82%, the drop on CoinDCX was around 70%, and 76% was the reported decrease on ZebPay exchange.
India exchanges lose between 70-90% volume
Meanwhile, Crypto India recorded a steeper fall in its report. While all of the above exchanges lost above 90% of their volume, Bitbns somehow remained resilient with only a 17% fall, the outlet noted.
Gaurav Dahake, CEO of Bitbns, had anticipated a 20% year-on-year decline in gross revenue after the implementation of TDS. In addition, the process will require the collection of TDS in Indian rupees (INR) [crypto will be converted into INR], which will be paid to the tax department.
Is TDS alone responsible for the fall?
Rajagopal Menon, vice president at WazirX, told the Economic Times: “At present, it is still premature to predict the ramifications of TDS. We will be in a better position to understand this by the second week of July. There has been a fall in trading across the industry as investors shift to hold and there may be another dip as traders see their capital getting locked while trading on KYC-compliant Indian exchanges,” he added.
Finance Minister Nirmala Sitharman had proposed the 1% TDS regime on crypto transactions, along with a new 30% tax on the income from the transfer, during the Union Budget in Feb.
India’s 30% tax law came into effect on April 1 while the TDS was implemented this month.
Even in April, the Indian domestic exchanges had seen trading volumes drop between 15% and 55% in the aftermath of the new regime.
Diversifying revenue and expanding user base
The new regime also comes weeks after major exchanges like CoinDCX and Coinswitch Kuber suspended withdrawals for users due to a market downturn and changes in domestic know your customer (KYC) regulations.
And as volumes plummet, so do exchange revenues, meaning domestic exchanges are facing a hard crypto winter.
However, Crypto India lists ways in which these exchanges could revive their volumes. The platform recommends enabling options like futures trading, SIP or Systematic Investment Plans, lending and borrowing, along with obtaining licenses for securities and commodity trading, to attract more users and diversify the revenue stream in a weaker digital asset market.
At the time of writing, the global cryptocurrency market cap on CoinGecko remains under $1 trillion.