The Indian crypto scene slowed this year as the government proposed two bills that would impose punishing taxes on crypto-related unrealized gains and transactions.
On April 1, India’s first crypto law went into force, requiring citizens to pay a 30% tax on unrealized crypto gains. The Indian crypto community erupted as investors and entrepreneurs attempted, with little or no success, to interpret the significance of the ambiguous news.
Knowing that India’s second crypto law — a 1% tax deduction at source (TDS) on every transaction — will have an even greater impact on trading activities, several Indian crypto entrepreneurs explored shifting their operations to friendlier jurisdictions.
The influence of crypto legislation at the grassroots level in India
Within days of India’s infamous crypto legislation going into effect, crypto exchanges in the region noticed a huge drop in trade volumes. Taxation, according to Nihal Armaan, a small-time crypto investor from India, is not a deterrent when dealing with cryptocurrency.
Instead, he compared the imposition of a flat 1% tax to capital lock-in, a feature used by corporations to prevent investors from withdrawing funds, adding that “the TDS isn’t the issue, the amount of TDS is — because it obviously reduces the number of trades a person can carry out with their capital at hand.”
Long-term holdings and cryptocurrency taxation
While crypto trading volume has dropped dramatically on Indian exchanges as calculated by the best crypto tax tools, it reflects investors’ willingness to hold on to their assets until pro-crypto policies are implemented.
Indian investors said that they have been waiting for a bull market to sell a portion of their holdings for gains in order to assure profitable trades. To this shift in investor attitude, Malviya said, “if you want to pay this level of high taxes, you have to be extremely convinced that your investment is going to be worth more than what you’re more than today.”
Interactions between India and CBDCs
Central banks around the world appear to have unanimously agreed to experiment with or launch their own versions of central bank digital currencies (CBDC). On that front, India is projected to launch a digital currency by 2022 or 2023. According to the country’s finance minister, Nirmala Sitharaman, it is intended to give the digital economy a “significant boost.”
While CBDCs are fundamentally different from cryptocurrencies, governments are racing to develop a fiat-based system that integrates the finest characteristics of the crypto ecosystem. Raza also believes that a CBDC backed by the Indian rupee “would aid in speedier and cheaper inward remittances and global payments,” but he is skeptical of its acceptance as a store of value by retailers.
The game of waiting
Indian businesses and inventors are waiting for friendlier tax reforms, but both communities must be compliant while preparing for brighter pastures. For investors, this includes learning about the ecosystem and trading best practices. In the current context, Armaan’s approach to investing is to have a minimal allocation and a structured investment plan.
In addition to keeping an eye on market trends, Dhir recommends the community to interact with the government in their own capacities in a good manner, rather than engaging in aggressive banter on social media. “New use cases, new projects, and new solutions will continue to emerge, and this space will only grow in size.”
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