India’s tax on cryptocurrency transactions is becoming a boon for international exchanges, as users transact in overseas exchanges to avoid paying the 1% tax deduction at source (TDS) imposed in July. Among the beneficiaries: International platforms such as Binance and KuCoin.
According to data collected by AppTweaks, an app analytics platform, Binance alone was downloaded 750,000 times by Indian users in June and July. In addition, Singapore-based KuCoin and US-based Coinbase got almost 200,000 downloads each, while some 16,000 users also downloaded San Francisco-based Kraken.
About 40-50% of downloads usually convert to active users, an executive from crypto exchange WazirX said on the condition of anonymity. "Our sense is that investors are moving to foreign centralized and decentralized exchanges - thus unwittingly being non-compliant with Indian laws," WazirX said in a statement. "Data as to how much is difficult to assess — one proxy for this phenomenon could be app installs — foreign exchanges saw a jump in app installed during this period while Indian exchange's app installs remained constant," it added.
India’s new tax rules require exchanges in India to levy a 1% TDS on crypto transactions and submit the same to the income tax department on behalf of the user. Crypto exchanges apply this tax when a user places an order, thereby reducing their net gains, to avoid slippage (difference in the expected price of an order and the price when it is actually executed).
International exchanges, however, do not apply these taxes and operate as before. As a result, crypto assets can be transferred from wallets on Indian to global exchanges by transacting over blockchains. While users doing this incur a one-time transaction fee, called a Gas Fee, most view this as a better option than paying TDS every time they execute a trade.
International exchanges like Binance and KuCoin do perform know-your-customer (KYC) checks before allowing trading on their platforms. However, they do not levy the 1% TDS that Indian exchanges do. According to clarifications issued by the Central Board of Direct Taxes (CBDT) via Circular No. 13 on 22 June, exchanges have to levy the 1% TDS on transactions. It does not clarify whether this applies specifically to Indian exchanges.
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