India's Crypto Exchanges Struggle to Capture Inflows Amid Withholding Tax

India's crypto exchanges are struggling to capture a significant share of exchange value inflows, according to Chainalysis. The report found that domestic platforms received just 0.7% of exchange value in the past year, despite India-based users sending $88.4 billion in centralized-exchange inflows.

This figure makes India the largest market for centralized-exchange inflows in Central and Southeast Asia and Oceania. However, the report also notes that a significant portion of this activity reaches platforms based abroad.

Chainalysis attributes the sharp decline in domestic-platform share from around 7% to 0.7% to mid-2022, with India's current withholding tax rate contributing to the issue. Withholding can reduce the cash available for another trade and add complexity to transaction processing.

Ashish Singhal, co-founder of CoinSwitch, told Chainalysis that 'tax friction helps explain offshore use', adding that foreign venues may not make the deduction. This suggests that competitive pressure from compliant exchanges is a significant factor in India's low domestic-platform share.