Trading volumes on cryptocurrency exchanges take a hit

Bengaluru: Higher tax rate on earnings from crypto assets in India has started to impact the volume on crypto exchanges in the country. From April 1, 2022, traders are required to pay a flat 30 per cent tax on gains made on virtual digital assets like cryptocurrencies.

A tax deducted at source (TDS) of one per cent 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.

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.

Trading volumes on cryptocurrency exchanges have declined by 30-70 per cent after hitting a monthly peak on March 31 owing to new taxation measures. On April 3, volumes at these trading platforms were down 30-50 per cent compared to March 31, according to data compiled by secondary research firm Crebaco, but were steady compared to April 2.

The trading volume usually hit the highest on March 31 as 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, the decline has been sharper as compared to previous fiscal year.

India is still considering to come up with regulations that controls activities in digital assets space. However, this year's budget has proposed taxation on these assets without formal recognition and regulations.