Smart crypto exchanges are taking notice. The increase in popularity of cryptocurrencies in India is certainly making waves; however, the Indian crypto tax system is unique, rife with complexities, and any exchange expanding here or entering this market for the first time should do so intentionally and carefully. And with help.
Indicators of opportunity for crypto exchanges in India
India remains the top country in the Central and Southern Asia and Oceania market (CSAO), “receiving $172 billion in cryptocurrency value from July 2021 through June of this year.” In fact, according to Chainalysis’ “2022 Geography of Cryptocurrency Report,” India ranks fourth in overall index rating, just ahead of the United States.
India is a hot market indeed.
Crypto exchanges that have already entered India’s market include CoinDCX and CoinSwitch Kuber. While recent government regulations resulted in some hesitancy on the part of adopters, savvy exchanges in this market, like KuCoin, see the promise for the future, understanding that “the Indian crypto market is expected to reach $241 million by 2030.” After conducting extensive research on the development of the blockchain industry and crypto space in India, KuCoin determined that “with its rapidly growing middle class and tech-savvy, young population, the country is poised to become a powerhouse of the digital economy in the near future.”
Many in India, in fact “every fourteenth Indian,” responded to the pandemic by seeing crypto as a way to secure household savings. This activity made Indian citizens the second highest adopters of cryptocurrency globally. Reports show that a year later, Indian citizens stand in fourth place as adopters due to the government’s response to this trend of eager acceptance of cryptocurrency.
The Indian crypto regulatory environment
The Indian government shook up the cryptocurrency world on April 1 when it held citizens to a 30% tax on unrealized crypto gains and a 1% tax deduction at source (TDS) on every transaction. This may give some pause to taking on exchanges in India, but the climate might not turn out to be as harsh as it initially seems.
Why did the government enact these regulations? What’s in the works regarding the Indian government’s involvement in cryptocurrency exchanges?
It’s helpful to look at their decision in context, and it’s also important to understand that the government’s position is less of a stance and more of an on-going conversation.
Shivam Thakral, CEO of BuyUcoin, stated that, “[t]he new crypto tax regime has made the crypto transaction transparent and traceable for the government.” This does raise an obvious question: who’s going to track these transactions? Naturally, crypto exchanges will be looked to as the logical point of data collection.
India will host the G20 Summit in 2023. This important global forum brings together the world’s major economies, and the Indian tax authority seems eager to simplify the tax system. Indian Finance Minister Nirmala Sitharaman spoke on the importance of regulating crypto assets: “We need to have all the members of the G20 first of all to come on board to see how best it can be done.”
The digital rupee’s (or CBDC) recent introduction into India’s banking system makes apparent India’s interest in competing with the digital market globally: “The Reserve Bank of India (RBI)’s prime objective for launching the pilot project on the digital currency is to advance India in the race for virtual currencies. This is also because crypto currencies are becoming more and more popular.”
Given these considerations, balancing risk and reward are likely top of mind for exchanges investigating new opportunities in India. With tax reforms expected over the coming years, now might be a good time to start researching opportunities in preparation for changes when they come. Keeping in mind the scrutiny the Indian government will have over activity in cryptocurrency exchanges, users will also have to be careful to disclose with accuracy crypto capital gains in their tax reporting from day one.
Crypto tax partners make a big difference
Consider a partner. Given the unsettled nature of India’s cryptocurrency regulatory environment and lack of direction for investors, exchanges that offer tax software capabilities will become necessities for users looking to ease the burden of transaction tracking and tax reporting. And by partnering with an automated tax solution provider, exchanges can differentiate at the level of value, gaining important competitive advantages in a complex market.
BlockSentry’s global perspective and technical capabilities come together to offer exchanges a simple, accurate, and automated crypto tax software that delivers third party corroboration and verification, along with simplified compliance solutions for users, exchanges, and governments.
It’s the perfect tax compliance partner for exchanges looking to grow in India.