After India implemented a one percent tax-deducted-at-source (TDS) on cryptocurrency transactions, millions of users shifted to international exchanges, reports the Esya Center. Introduced to curb speculative activity and enhance transparency, the tax fell short, resulting in a potential revenue loss of $420 million (Rs. 3,493 crores) compared to the collected $30 million (Rs. 258 crores).
Domestic Indian exchanges generated 97% of revenue ($29 million or Rs. 250 crore), while trades on foreign platforms by Indian users contributed only $840,000 (Rs. 7 crore), less than 0.2% of the anticipated $420 million (Rs. 3,500 crores).
Esya Center's research, covering P2P trader volumes, global crypto data, and surveys of Indian exchange executives, reveals the 1% TDS collected just $12 million this fiscal year.
Between Feb and July 2022, 3-5 million Indians migrated to foreign platforms, with one reporting 450,000 sign-ups post-TDS in July 2022. Foreign platforms saw a rise in traffic, active users, and Indian downloads, while domestic exchanges declined.
Additional analysis shows negative impacts on users, with varying effects from 44% to 74%. P2P data from major foreign exchanges indicates Indians exchanged over $47 billion (Rs. 3,50,000 crores) between July 2022 and July 2023, constituting over 90% of total crypto trades.
Executives at seven Indian exchanges attribute offshore P2P trading surge to TDS, urging policy revisions. Reducing TDS to 0.01% is proposed to encourage traders back to domestic exchanges. Esya Center suggests policy measures, including clarifying TDS applicability to foreign platforms, lowering TDS, standardizing processes, and authorizing blacklisting of non-compliant foreign exchanges.
Dr. Vikash Gautam, report author and Esya Centre Adjunct Fellow, emphasizes the urgent need to reduce TDS for the Indian economy and VDA industry investors' benefit.
