The 1% TDS tax on crypto transactions implemented by India 16 months ago has proven to be counterproductive, driving 95% of Indian trading volumes to overseas platforms that are difficult for local officials to monitor. CoinDCX, a domestic exchange valued at over $2 billion, believes that the tax should be lowered to achieve its intended purpose of tracking and tracing transactions. CEO Sumit Gupta expects the government to recognize this problem and take steps to address it.
The imposition of the tax has led market makers to exit Indian exchanges, resulting in reduced liquidity and discouraging trading. Despite a global rebound in Bitcoin and increased trading volumes elsewhere, local platforms in India remain stagnant. India has called for a globally coordinated approach to crypto regulations, and Gupta anticipates more regulatory clarity by the end of 2025, following the nation’s general election in 2024.
CoinDCX, which experienced a decrease in revenues and increased compliance expenses due to the tax change, has reduced its staff by 12% and now has around 550 employees. However, the company still has operating revenue and cash reserves that provide a five-year “runway” for its operations. While other jurisdictions such as Hong Kong, Dubai, and the European Union have rolled out crypto frameworks to protect investors and provide clarity for digital-asset companies, India lags behind. Data from Chainalysis suggests that India continues to adopt crypto through offshore trading and blockchain-based financial services like lending, with the country receiving crypto valued at about $250 billion in the year through June.
To diversify revenue streams, CoinDCX and other Indian digital-asset exchanges are looking abroad and expanding into different projects. CoinDCX recently led a funding round in BitOasis, a crypto platform focused on the United Arab Emirates, Saudi Arabia, Bahrain, and Kuwait. Additionally, the company is building a crypto wallet called Okto, which aims to bring web3 to life by enabling coin holders to explore decentralized finance.
Overall, the need to lower the tax on crypto transactions in India is evident, as it has led to unintended consequences such as reduced trading volumes on local platforms and increased activity on overseas platforms. By addressing this issue, India can create a more favorable environment for crypto trading and attract investors and businesses in the digital asset space.