Nischal Shetty, founder and CEO of the popular crypto exchange WazirX, sees the proposed tax on crypto transactions largely as a positive move for investors and crypto players and proposes tweaks in his offerings to save his young demography from tax burden. Edited excerpts:
While cryptocurrency trading is not illegal, the government has indicated that it does not want to encourage it. What do you think will be the impact of the proposed 30% tax on crypto profits?
It is a smart move to wait and watch. Taxation will have a positive impact, because a large portion of the market which is not yet into crypto has been trying to gauge the legal aspect of it. People are much more confident now, because they can declare it openly. Corporates, too, had similar concerns. For the government, it was also the fastest way to go to the market without getting into the finer details.
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There is no change for people who already fall under the 30% tax slab, but for the others, particularly the 18-25-year-olds—the biggest investor bracket of the crypto sector—it is a big blow. These are mostly college students or those who have just started working. So, we are looking at some tweaks. The tax deduction at source (TDS) of 1% on the entire trading amount should be brought down to 0.01%.
The government is also working on regulating crypto. What are your expectations as a major industry player?
Instead of regulating crypto, the exchanges need to be regulated. Participants and service providers need to be regulated. We, as exchanges, follow a self-regulated code of conduct, where we have certain guidelines. Everyone who is operating in India or providing services to the Indian audience has to comply with know your customer (KYC) process and anti-money laundering laws. Solvency is also very important. Exchanges deposit your money and allow you to trade. How do you know they have the required funds? There has to be a formal way as the government mandates. Plus, it must be ensured that all the exchanges operating in the country are also registered here. The US has already done that because it helps control the participants.
How have you seen the industry growing in India?
When the Reserve Bank of India banned banks from supporting crypto transactions in 2018, most of the exchanges either shut down or left the country. That is when we realised that we needed to first educate people. Things have improved and people have begun to understand crypto. Within the government, we are seeing discussions. With taxation, the entire financial ecosystem, including chartered accountants, will have to learn about crypto. From two to four million delving into crypto initially, today the number is more than 20 million. In another two to three years, close to 100 million people will be into crypto.
Tell us about the investor demography in India.
For us, the 18-30 age group is the largest segment. The ticket size is Rs 30,000-40,000, though you can trade hundreds of times with that amount. Tier II and Tier III sign-ups are now larger than what we have in the metros–about 55% of investors come from smaller cities and 40-45% from the metros. At about 15-20%, women participation is low but higher than traditional markets. Indians own about $3-4 billion worth of crypto assets.
Where does India stand globally in terms of crypto?
India is among the top five countries in terms of adoption. In wealth creation, it is among the Top 10 or 20, because our ticket sizes are lower in comparison. We lag in terms of the companies and start-ups in the sector. Due to the banking ban, India lost two to three years of the innovation cycle and the first wave of crypto start-ups. India also lost out on a lot of foreign investment.
Can crypto be brought out of the negative light?
There is yet to be an innovation which has not been misused. The biggest example of that is the internet. The world runs on it today, but it is also highly misused. So, should it be banned?
TDS on crypto transactions may require you to share your investors' data with the Income Tax Department. Are you prepared for it?
When you are dealing in financial markets, every player is bound to share the required data as per the law. We will also have to abide by the law of the land.
What is your existing level of engagement with the government?
Informally, wherever we have been invited as an industry participant or exchange, we have participated. Formally, there have been only a couple of meetings that we have been asked to be part of. That may change in the future though. On the crypto bill, there has been no industry consultation at all.