India's Crypto Industry Seeks Tax Relief Amid 90% Trading Volume Drop

India’s cryptocurrency industry is actively pushing for a reduction in the steep tax rates that have been a significant barrier to growth. The current tax regime, which includes a 30% tax on crypto gains and a 1% tax deducted at source (TDS) on every transaction, has led to a drastic decline in trading volumes on local platforms. This has forced many Indian crypto investors and companies to seek more favorable jurisdictions. Exchanges like Binance and Coinbase have also scaled back their operations in India due to the harsh tax policies.

The 2022 tax regime was particularly detrimental, causing trading volumes to drop by nearly 90%. The 1% TDS on every trade made active trading nearly impossible, leading to a significant loss of liquidity and pushing users to global platforms. This exodus of investors and companies has highlighted the urgent need for regulatory reforms to retain market participants and foster growth.

Recent developments indicate a shift in the government's stance. There has been an increase in the frequency of meetings between regulators and crypto leaders, moving from semiannual to biweekly discussions. This change suggests a more open and collaborative approach from the government. Industry representatives are advocating for a lower TDS rate of 0.1%, which they believe would allow for effective transaction tracking without stifling market activity.

The potential reduction in taxes aligns with India's broader ambitions in fintech and digital infrastructure. With the domestic crypto market expected to reach $15 billion by 2025, there is growing pressure to avoid another missed opportunity. The government's consideration of reducing the 1% crypto transaction tax to 0.1% is a significant step in this direction. This move could potentially bring back users and companies that left the country, revitalizing the local market.

The government's re-evaluation of its crypto tax policies may also be influenced by global trends. The vocal support of cryptocurrency by former U.S. President Donald Trump has helped legitimize the sector internationally, prompting Indian policymakers to reconsider their position. This shift in global sentiment, coupled with domestic pressure, has created an environment conducive to regulatory changes.

The industry's push for tax relief is not just about reducing financial burdens; it is also about creating a more stable and predictable regulatory environment. The 2022 WazirX hack, which resulted in over $230 million in losses, exposed serious flaws in consumer protection and accountability. This incident underscored the urgent need for clear policy and regulatory frameworks to safeguard investors and ensure the market's integrity.

There are also signs that India is reopening its doors to foreign crypto businesses. Binance and Coinbase, which had previously withdrawn from the Indian market, have recently received approvals to re-enter. This reopening suggests that Indian regulators are becoming more receptive to the potential benefits of cryptocurrency and are willing to engage with global players.

As the government weighs its options, the next few months will be critical. A revised tax structure could breathe new life into India's crypto industry, restoring market efficiency and potentially bringing back users and companies that left the country. For now, the industry remains cautiously optimistic, hoping that the government will decide to embrace the future of digital assets and create a more favorable environment for growth.