As the global leader in cryptocurrency adoption, India’s government has announced the blocking of nine foreign cryptocurrency exchange websites, including Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex.
India’s government has begun blocking overseas exchanges.
India’s new tax system scares away 5 million cryptocurrency investors.
The Indian government is expanding its crackdown on overseas cryptocurrency exchanges and taking action to prevent its citizens from accessing these platforms. According to a notice released by the Financial Intelligence Unit (FIU) of India on the evening of the 28th, the agency has issued show-cause notices to nine overseas digital asset service providers, including Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex. The notices accuse these providers of non-compliance with India’s Prevention of Money Laundering (PML) regulations and involvement in illegal operations in India.
The FIU has sent a letter to the Ministry of Electronics and Information Technology, requesting the blocking of the aforementioned nine cryptocurrency exchanges. The agency explained that Virtual Digital Asset Service Providers (VDA SP) have been included in the Anti-Money Laundering/Counter-Terrorism Financing (AML-CFT) framework since March 2023, in accordance with the Anti-Money Laundering Act.
Based on this regulation, digital asset service providers operating in India, whether domestically or overseas, must comply with a series of regulatory requirements. These requirements include registering with the FIU as “reporting entities” and adhering to the provisions outlined in the Anti-Money Laundering Act of 2002, including conducting KYC identity verification for new customers.
This unprecedented enforcement action by the Indian government against cryptocurrencies reflects the country’s efforts to prevent its citizens from turning to offshore exchanges. India ranks first in the Chainalysis 2023 Global Cryptocurrency Adoption Index and is the second-largest global market after the United States in terms of raw trading volume, highlighting the popularity of cryptocurrencies in India.
However, India passed a controversial cryptocurrency taxation law in March last year, which imposes a 30% capital gains tax on cryptocurrency transactions. Starting from July 1, users are also required to pay a 1% Tax Deducted at Source (TDS) and a cryptocurrency gifting tax for any cryptocurrency transactions. TDS requires operators or service providers to withhold a certain amount during the transaction and subsequently pay it to the government on behalf of the user. Additionally, this tax policy prohibits users from deducting losses and treats cryptocurrencies differently from investment products such as stocks and bonds.
Since the implementation of this law, the trading volume of local exchanges has significantly decreased. According to a report by CoinDCX, an Indian cryptocurrency exchange, 95% of Indian trading volume has flowed to overseas platforms after more than a year of implementing the new tax system, making it difficult for local officials to monitor these platforms. A report published by Esya Centre last month stated that India’s new tax system has forced up to 5 million cryptocurrency investors to shift their transactions overseas. Over $3.8 billion in trading volume has also moved from Indian domestic exchanges to the international trading market. Since the implementation of the TDS tax system, the government has also lost approximately $420 million in potential tax revenue. Therefore, it is recommended that the government reduce the TDS tax rate from the current 1% to 0.01% to alleviate this phenomenon.