Volumes across top crypto trading platforms surged on the last day of the financial year as traders squared off their positions before a new tax regime governing virtual digital assets (VDAs) came into effect on April 1.
Traders are now required to pay a flat 30% tax on gains made on VDAs.
Further, unlike in other asset classes, retail investors will not be able to set off losses incurred against crypto coins, claim expenses or acquisition costs, or benefit from a reduced slab for long-term capital gains under the new tax regime.
A tax deducted at source (TDS) of 1% will also come into effect from July, which is when crypto platforms are expecting a major hit, as intraday traders account for a bulk of daily volumes.
“The trading volume was the highest on March 31 as users/ investors squared off their positions before the start of the new financial year. There has been a decline since April 1, which is usual at the start of every financial year. However, this year, we are seeing a sharper decline due to the stringent tax laws,” said Minal Thukral, senior vice president, growth and strategy at crypto platform CoinDCX.
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On April 3, volumes at these trading platforms were down 30-50% compared to March 31, according to data compiled by secondary research firm Crebaco, but were steady compared to April 2.
Executives at some crypto exchanges, however, said it was too soon to attribute the drop to recent tax amendments.
“In the last two days, there has been a dip in trading volume across Indian exchanges. However, it’s still too soon to deem it as an effect of the recent amendments,” said Nischal Shetty, cofounder of WazirX. “We will have some idea by the second or third week of April on whether crypto taxes will impact the industry or people will still trade and not worry too much about the changes.”
ET reported on April 1 that up to 50% of volumes from crypto platforms will evaporate once the new tax norms are fully in force.
A bulk of the estimated 15-20 million retail crypto investors in India joined the crypto bandwagon last year amid a record-setting bull run in the market and aggressive customer acquisition campaigns by well-funded crypto trading platforms.
“The drop was inevitable due to the new tax laws. Better regulations and an easier tax framework have to be implemented quickly,” said Sidharth Sogani, founder of Crebaco. “Timing is everything; if not introduced early, the ecosystem will suffer in India… It is India’s opportunity to be at the forefront of crypto development and be a world leader in Web 3.0.”
