Crypto tax effect: HNIs replace youngsters, trading volume declines

Taxation at a steep 30%, burden of filing returns with crypto transaction details put young investors off the Web 3.0 instrument

Supreme court, bitcoin, cryptocurrency, ban, Reserve Bank of India, consumer safety, money-laundering
Finance Minister Nirmala Sitharaman while presenting the Budget 2022 had announced that income from transfer of virtual assets would be taxed at 30%.

From April 1, India has started imposing a tax of 30% on income from cryptocurrencies and other virtual digital assets (VDAs). The new taxation rules have reportedly resulted in youngsters liquidating their positions and being replaced by high net-worth individuals (HNIs) as key investors in the segment.

A report in Economic Times quoted crypto exchanges as saying that several young investors who booked profits through high volumes of trading have liquidated their positions, particularly in the riskier assets. Several of these young investors were from small cities and towns.

During the COVID pandemic, youngsters from tier 2 and tier 3 cities had flocked to cryptocurrency platforms and crypto exchanges had also recorded a steeper growth in smaller cities than metros, according to the ET report.

Also read: 30% tax on cryptocurrency income comes into effect starting April 1

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Greater clarity

HNIs who invest Rs 10 lakh or more at a time, are showing an increasing appetite for crypto assets, according to exchanges. The HNI investors now appear to have greater clarity on the instrument, as against youngsters, the report said, quoting a cyprto exhcange co-founder.

Also read: Crypto heist: Hackers steal $625 m from video game Axie’s blockchain

Now, with the new taxation rules, youngsters are moving away. While the tax means lesser cash in hand, it’s not the only reason why young investors are shunning VDA investments. The prospect of filing their tax returns with these additional inputs is also off-putting.

Meanwhile, the new tax regime has witnessed a decline in crypto trading volumes. “Indian exchanges saw volume drop after new crypto tax rules became applicable on 1st April,” Aditya Singh, co-founder, Crypto India, wrote on Twitter with screenshots of trading from four exchanges.

Crypto exchange WazirX’s co-founder Nischal Shetty questioned the government over the new taxation rules, and urged it to rethink.

“The new crypto tax law being imposed in a country with the largest youth population is hard to believe Most people want to think it’s an April Fool’s joke by Indian Government,” he wrote on Twitter.

Budgetary proposal

Finance Minister Nirmala Sitharaman, while presenting Budget 2022, had announced that income from the transfer of virtual assets would be taxed at 30%.

“I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30%. No deduction in respect of any expenditure or allowance shall be allowed while computing such income, except the cost of acquisition,” Sitharaman said.

Also read: Top 10 global havens to avoid paying tax on cryptocurrency

Apart from the 30% tax on virtual digital assets, from July 1, there will also be 1% TDS (tax deducted at source) on all transactions (profit or loss) involving VDAs.

The new taxation rules have been opposed by crypto supporters.

Crypto India’s Aditya Singh has started a petition on change.org urging the government to reconsider the tax rules as they could have a “devastating impact” not only on crypto traders but crypto industry as a whole.

“These new crypto tax rules are too harsh and will hurt the entire industry…Crypto industry should not be treated at the same footing as those of the betting and gambling industry. Crypto not only includes speculation on assets by traders per se but also encompasses and explores various use cases of the underlying technology,” Singh said.

“Nations around the world are competing to become technological leaders in Crypto but it’s sad to see that in India, Crypto Industry is being treated at the same footing as those of the betting and gambling industry,” Singh tweeted on Sunday (April 3).

According to him, India has become the first country to tax crypto like gambling win.

No setting off of losses

“As per the new amendment in Finance Bill, 2022 loss set off in any pair won’t be allowed. Traders will be liable to pay a flat 30% tax on every profitable trade, even if you lose capital in the following trades… Loss from the sale of one type of crypto will not be allowed to be set off against the profit arising from the sale of another type of crypto,” he explained.

Recently in Parliament, Shiv Sena MP Priyanka Chaturvedi too questioned the government over the crypto rax rules. She said, “We are living in the world of web 3.0, either we choose to bite the bullet or we dodge the bullet.”

As per a Reuters report in February, industry estimates suggest there are 15 million to 20 million crypto investors in India, with total crypto holdings of around 400 billion rupees ($5.37 billion).

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