(Small traders might migrate to the grey market)
Starting April 1, small investors and crypto platforms will have to pay a 30% tax gain on virtual digital assets, which is likely to reduce transaction volumes in the coming months, according to experts speaking in a Moneycontrol Twitter space session yesterday.
Sathivik Vishwanath, the co-founder of cryptocurrency exchange Unocoin, Sidharth Sogani, founder and CEO of research company CREBACO, Manhar Garegrat, executive director and chief of staff of cryptocurrency exchange CoinDCX; and Rashmi Deshpande, partner at law firm Khaitan and Co., were among the panel members.
They also stated that this move will be a significant barrier for smaller investors and that it is expected to drive retail investors to the grey market or decentralized exchanges.
DEXs (decentralized crypto exchanges) don’t require any registration and allow users to keep all of their assets in their accounts.
“While some institutional investors and high net worth individuals (HNIs) may leave cryptos, we predict greater participation from investment firms and HNIs trying to diversify their portfolio.” So, while I don’t foresee substantial growth in the number of users, we will soon see customers with more significant ticket sizes participating,” Vishwanath explained.
“If an investor wants access to many cryptocurrencies, especially an established investor who wants to buy developing tokens, that will become tough now,” Sogani added. People may be reluctant to invest in these growing high-risk assets in India.”
“The influx is anticipated to remain. However, it becomes tough for the little investor who invests Rs 10,000 to 20,000 because they do not invest with a long-term view,” he added.
In India in 2021, Shiba Inu (SHIB), Dogecoin (DOGE), and Matic (MATIC) were among the most popular cryptocurrencies.
Furthermore, these investors would be unable to deduct their losses, which is typically a provision in other forms of assets, further complicating their problems.
Sogani remarked on this, arguing that this action is unlawful because investors in other asset classes are permitted to do so, but not in this situation.
A shift to the grey market is going to take place.
Experts have been predicting how the industry will migrate toward the grey market for months.
“This shift will drive volatility and investors away from established exchanges with some type of structure, self-regulation, and KYC rules and into unorganized ecosystems,” Garegrat added. “They not only put the government and industry at danger, but they also put investors at risk, who may not fully understand the risks and are merely looking to save money in the long term.”
“There are a thousand methods for these investors to dodge these taxes,” Sogani added, “therefore it is better to embrace the ecosystem and assist it flourish rather than pulling these people away.”
“In the short term, there will be snags,” Deshpande argued, “but in the long run, if the firms have good fundamentals and the government can see the purpose, they will soften their stand and we will be able to ride the storm.”
The experts also stated that the 1% TDS, applied on July 1st, will be challenging to administer.
“The government must make a speedy decision on whether or not to legalize it but they don’t need to ban it. “Deshpande stated.