Trading volume of Indian crypto exchanges decline after application of 1% TDS

The trading volumes of crypto exchanges have been affected globally by inflation, rate hike and rising oil prices. In India one more factor has come into play from July 1, 2022 onwards: 1 per cent TDS. According to the new section called 194S, introduced in the Income-Tax Act 1961 by the Finance Bill 2022, now on every sell order of crypto 1 per cent of the transaction amount gets deducted as Tax Deducted at Source (TDS). The crypto exchanges are liable to deduct this amount and deposit it with Income Tax Department which the seller can offset later.

Minal Thukral, Executive Vice-President (Growth and Strategy) at CoinDCX said, “The impact on volumes is seen globally and in India. The global macroeconomic developments like inflation, rate hike, impact of war on oil prices is affecting the price situation which in turn is affecting volumes. The other part is the crypto market cycle, after every bull phase there is a bear phase, which we are currently experiencing and coupled with the 1 per cent TDS implementation is having a deterrent impact from an Indian user perspective."

Considering that 1 per cent TDS blocks the capital for future trades, it has led to a decline in trading. “Volumes have been down by about 70 per cent since the introduction of TDS. Investors are probably observing how it plays out in terms of price and liquidity. We anticipate this to recover in the medium term," said Vikram Subburaj, CEO, Giottus Crypto Platform.

Thukral added, “It's too early to give out a trend as we need to look at the volumes over a period of 30 days as opposed to a brief 5-10 day period. The change in volumes is a business cycle for any exchange but most importantly we are seeing an increasing trend towards buy and hold behaviour."

Does it mean then that users are migrating to international or decentralised exchanges? “We are mindful that trade on international or decentralised exchanges may increase but investors should be wary of the risks associated with the same,” explained Subburaj.

Till the market stabilises, exchanges say they focus on building innovative products and offering a better customer experience. “Lastly we will continue building new products which will be TDS friendly which provide a long-term investment opportunity,” said Thukral.

“We believe this is the time to build products and focus on customer experience. The markets are cyclical and eventually when the tides turn, customers are going to trade more and we will be able to provide more products and better experience. We continue to provide a safe pathway to invest in crypto assets in India and plan for an eventuality that trade volumes will grow in future. Till then, we will focus on upgrading our product and user experience,” added Subburaj.

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