As the world’s leading adopter of cryptocurrencies, India has announced that it will block access to 9 foreign exchanges, including Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex.
India is incorporating cryptocurrency exchanges into its anti-money laundering framework.
The Indian government has started blocking access to foreign exchanges.
India’s new tax system has driven away 5 million cryptocurrency investors.
The Indian government is expanding its crackdown on overseas cryptocurrency exchanges and taking official action to prevent its citizens from accessing these exchanges’ websites.
According to an announcement by the Financial Intelligence Unit (FIU) of India, the agency has issued show-cause notices to 9 foreign digital asset service providers, including Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex, accusing them of non-compliance with India’s anti-money laundering regulations (PML) and involvement in illegal operations in India.
The FIU has written to the Ministry of Electronics and Information Technology, requesting the blocking of the aforementioned 9 cryptocurrency exchanges.
The agency explained that virtual digital asset service providers (VDA SPs) were included in the anti-money laundering/anti-terrorism financing (AML-CFT) framework in March 2023, as per the provisions of the anti-money laundering bill.
Under this law, digital asset service providers operating in India, whether within or outside India, must comply with a series of regulatory requirements, such as 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. The announcement stated:
The Indian government’s unprecedented enforcement action against cryptocurrencies reflects the country’s efforts to prevent its citizens from turning to offshore exchanges.
India ranks first in Chainalysis’ 2023 Global Cryptocurrency Adoption Index in terms of raw transaction volume, making it the second-largest global market after the United States, highlighting the popularity of cryptocurrencies in India.
However, India passed a controversial cryptocurrency tax law in March last year, which stipulates that starting from April 1, 2022, the government will impose a 30% tax on capital gains from cryptocurrency trading. Additionally, as of July 1, it also requires a 1% tax deducted at source (TDS) and a cryptocurrency gift tax for any cryptocurrency transactions.
Note: TDS requires operators or service providers to withhold a certain amount during transactions and subsequently pay it to the government on behalf of the user. Furthermore, 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 evaporated. According to a report by DooPrime in October, Indian cryptocurrency exchange CoinDCX stated that the new tax regime has led to 95% of India’s trading volume flowing to offshore platforms, making it difficult for local officials to monitor these platforms.
Last month, the Indian think tank Esya Centre released a report stating that India’s new tax system has forced up to 5 million cryptocurrency investors to shift their trading activities overseas. Over $3.8 billion in trading volume has also moved from Indian domestic exchanges to the international market. Since the implementation of the TDS tax system, the government has lost approximately $420 million in potential tax revenue. Therefore, the report recommended that the government reduce the TDS tax rate from the current 1% to 0.01% to alleviate this phenomenon.