India’s centralized exchanges (CEXs) lost about $3.85 billion in trading volume since the regulator enacted a 30% crypto tax in April 2022. Experts suggested that if the stringent tax law remains active by 2026, the local CEXs would have lost about $1.2 trillion in trading volume.

Indian Exchanges Lost $3.85 Billion In Trading Volume In 2022

India’s local exchanges reportedly lost about 97.1% of their trading volume to foreign exchanges between January and October 2022. An analytic firm revealed the report using the three major exchanges in the country, Zebpay, WazirX, and CoinDCX, as a case study.

According to the report, their trading volume drastically dropped from $4.74 billion in January to $137.6 million in October, losing about $3.8 billion. In addition, the report faulted the introduction of the stringent 30% tax rule on CEXs for the massive outflow.

Between February and April, when the tax rule was introduced and implemented, India’s local CEXs lost about 15% trading volume. From April to June, they lost another 14%. 

Furthermore, from April to October, they recorded an 80% loss which amounted to about $3.5 billion. In addition, implementing the 1% tax deducted at source on every transaction beyond INR 10,000 without clarity on its mechanism further confused many CEXs.

Consequently, to avoid the two tax rules, many Indian investors abandoned the local CEXs and started using foreign exchanges like Binance, Coinbase, and others. The survey revealed that about 1.7 million Indians migrated to foreign exchanges in February 2022 alone.

Furthermore, an on-chain analytic firm recently researched about 5,436 peer-to-peer (P2P) traders. The report showed that between October and July 2022, Indian traders accounted for about $9.67 billion in peer-2-peer trading volume.

In addition, another study revealed that there was a 16% decline in monthly mobile app downloads for Indian exchanges. Conversely, a 16% increase in mobile app downloads for foreign exchanges was recorded between July and September.

The Consequences Of India’s Crypto Tax 

The data revealed by different studies showed that the stringent tax laws drove trading volume and liquidity from local to foreign exchanges. The harsh tax system in India dissuades investors from crypto transactions, leading to a massive capital outflow.

Moreso, the research revealed that the strict rule and undefined crypto regulatory system might impede local exchanges from raising capital like their foreign rivals and eventually lead to their financial instability.

In addition, if the tax persists, India would soon become unattractive to exchanges as many investors would patronize foreign crypto custodians. Also, the research predicted that local exchanges would incur a whopping loss of $1.2 trillion in trading volume by 2026 if the harsh crypto tax law continues.

However, the study suggested that regulators should suspend the TDS law for security token traders to prevent such a potential financial disaster. They should also allow investors to settle crypto losses and formulate progressive tax laws. 

Moreover, it is stated that adopting differentiated tax rates would help to mitigate capital outflow. If adopted, the study believes these changes could restore the trading volume of local exchanges in India to its glory days within six months. 

In addition, local crypto businesses can gain an average of 50.5% traction from Indian investors. 

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