Crypto investors flee Indian exchanges, but tax’s still gotta be paid

This step is in accordance with the global trend of mandating digital-asset platforms to comply with anti-money laundering norms that are similar to the standards followed by other regulated entities such as banks and stockbrokers | Pic: iStock

Indian cryptocurrency investors are transacting on overseas exchanges in a bid to avoid paying the tax imposed on such transactions by the government in the country.

Foreign crypto exchanges such as Binance, Coinbase, KuCoin and others saw a boom in their usage since the Indian government announced a 1% tax deduction at source (TDS) in June, effective from July 1. A 30% tax on all virtual digital assets (cryptocurrency included) remains in force since the Finance Minister Nirmala Sitharaman announced in the budget in February. This would mean a total of 42% tax outgo on profit made on such transactions.

Binance was downloaded 750,000 times by Indian users in June and July, followed by Seychelles-based KuCoin and US-based Coinbase got almost 200,000 downloads each, while some 16,000 users also downloaded San Francisco-based Kraken.

The trading volume on Indian exchange WazirX had come down 68% while on CoinDCX and ZebPay, they were down 83% and 16%, respectively. A smaller exchange Koinbazar saw a 7% jump in trading volume since July 1 but the same since February has gone down by 56%, according to reports.

Singapore and Dubai are two major bases for crypto exchanges have been encouraged and so investors too are thronging these exchanges virtually. Estonia, Miami, El Salvador, Malta and Zug in Switzerland are also wooing exchanges and traders.

“Our sense is that investors are moving to foreign, centralized and decentralized exchanges — thus unwittingly being non-compliant with Indian laws,” WazirX said in a statement. “Data as to how much is difficult to assess — one proxy for this phenomenon could be app installs — foreign exchanges saw a jump in app installed during this period while Indian exchange’s app installs remained constant,” it added.

That said if people did not pay the tax on the gains made on the cryptocurrency transactions made in foreign exchanges, they would be liable for legal proceedings.

Experts have however warned that moving from an Indian exchange to an international one would still attract the 30% tax on VDA, including cryptocurrencies.

“The proposed tax regime on crypto is agnostic of location of such crypto exchange, and until further clarifications from the government, tax would be levied on funds or any gains repatriated to India on sale of any crypto by an Indian resident,” Rishi Anand, Partner at DSK Legal, was quoted as saying by Financial Express.