India may need to rethink its approach to taxing cryptocurrencies, according to a recent survey conducted by the Esya Centre, a New Delhi-based technology policy think tank. The study highlights the impact of high crypto taxes and suggests that reliance on anti-money laundering (AML) regulations alone is insufficient to mitigate these effects.
The survey, conducted between March and April in five major urban centers—Ahmedabad, Bengaluru, Delhi, Jaipur, and Lucknow—encompassed 1,342 highly educated Indian investors. It sheds light on their awareness and preferences regarding cryptocurrency regulations and their investment behaviors.
Key findings from the survey reveal that a significant majority of Indian investors (58%) are aware of cryptocurrency taxation regulations, while 52% are familiar with money laundering laws. Notably, 93% of respondents prefer collateralized stablecoins over algorithmic ones, reflecting a clear inclination towards perceived stability in their crypto investments.
One critical insight from the survey is the observed shift in investment preferences. The anti-money laundering regulations, which require crypto businesses to register with the Financial Intelligence Unit (FIU) and comply with the Prevention of Money Laundering Act (PMLA), have contributed to an 8 percent increase in equity investments compared to crypto assets. This shift indicates a tangible impact of regulatory policies on investment choices.
Since the introduction of high crypto taxes in 2022, India has maintained these rates despite calls for reduction from various studies, including those by Esya. The high tax environment, coupled with stringent AML regulations, appears to have driven investors towards foreign crypto platforms, with investment in such platforms rising by 15% due to awareness of tax regulations.
In response to the government’s efforts to block access to offshore exchanges, the survey found that some investors have resorted to circumventing these blocks. This suggests that AML laws alone have not been effective in counteracting the adverse effects of high crypto taxes.
The Esya Centre advocates for a revision of India's tax rules on cryptocurrencies to mitigate the incentive for offshoring and to better align regulations with market realities. The think tank also emphasizes the need for future regulatory measures to involve consultations with crypto exchanges to foster responsible engagement in the crypto market.
Despite the current regulatory environment, Indian investors continue to view crypto assets as an attractive investment opportunity, particularly for cross-border transactions. However, non-fungible tokens (NFTs) and stablecoins are not perceived as equally lucrative compared to other crypto investments.
In summary, the Esya Centre’s survey suggests that revising tax policies on cryptocurrencies could help prevent capital flight and better balance regulatory goals with market participation. Engaging with crypto exchanges in future regulatory discussions may also enhance the effectiveness of policies designed to guide investor behavior in this rapidly evolving sector.
August 2024, Cryptoniteuae