A Shifting Seat at the Table
Cryptocurrency is no longer a fringe player in India’s financial landscape. With over 10.7 crore Indians holding digital assets as of 2021, the country topped global crypto ownership charts. Once a disruptive outsider, crypto now has a designated seat at India’s economic table—albeit under tight scrutiny.
The 2025 Union Budget reaffirmed the government's resolve to formalize this fast-growing sector, estimated at USD 6.4 billion and expected to touch USD 13.9 billion by 2033, according to IMARC Group. But instead of rolling out a red carpet for innovation, India’s approach has leaned heavily into tax enforcement, sparking frustration and flight among retail and institutional investors.
Heavy Taxes, Minimal Relief
India’s current crypto tax regime is among the world’s strictest. Gains from virtual digital assets (VDAs) are taxed at 30%, and every transaction is subjected to 1% TDS (Tax Deducted at Source). There’s no offsetting of crypto losses against gains—unlike equities, where capital losses can be used to reduce future tax liability.
This one-sided structure has prompted a mass shift to offshore crypto platforms offering friendlier tax terms, better liquidity, and fewer regulatory hurdles. Popular exchanges like Binance, KuCoin, Coinbase, Bitget, and Delta Exchange have become preferred destinations for Indian investors.
The Great Offshore Exodus
In 2023 alone, an estimated 3 to 5 million Indian users migrated to offshore platforms, as reported by the Esya Centre, a Delhi-based tech policy think tank. These platforms often lack direct integration with India’s tax system, allowing many users to bypass TDS—either deliberately or unknowingly.
Some platforms, like Binance and KuCoin, have re-entered the Indian market after settling fines. Others, like Coinbase, have secured FIU (Financial Intelligence Unit) approval for relaunch. Still, compliance remains a grey zone, as the Income Tax Department recently initiated probes into whether these platforms collect the required TDS.
Compliance Gap and Legal Risk
Indian exchanges like Mudrex and CoinSwitch ensure tax compliance by automatically deducting TDS. In contrast, most offshore platforms place the burden on users. This gap leaves investors vulnerable to legal complications.
In December 2024, Indian authorities uncovered ₹824.14 crore in GST evasion across 17 crypto platforms. The largest offender, Nest Services Ltd (linked to Binance Group), allegedly evaded ₹722.43 crore. These revelations underscore the fragmented nature of India’s crypto compliance regime.
Investor Dilemmas and Penalties
Confusion over compliance has led to painful consequences for some investors. The Income Tax Department has issued notices to P2P (peer-to-peer) traders on platforms like Koinx and TaxNodes, categorizing their transactions as “unexplained cash credits.” In some cases, investors were slapped with tax rates as high as 60–70% due to missing PAN details or mismatched usernames across exchanges and bank accounts.
Given that buyers in P2P transactions are responsible for deducting and remitting TDS, experts strongly advise Indian crypto traders to maintain complete records of transactions, including KYC details of counterparties, to avoid penalties.
Calls for Reform Grow Louder
Despite repeated appeals from industry players since 2022, the government has not revised its crypto tax rules. Many believe the system is designed more to monitor transactions than to promote innovation.
“The inability to offset losses adds risk and discourages serious investors,” notes Balaji Srihari of CoinSwitch. “In equities, losses help reduce tax burdens. In crypto, you're taxed on gains—but losses don’t count.”
Looking Ahead: A Crossroads Moment
The global crypto landscape is evolving rapidly. Countries like the United States are embracing more progressive policies, with President Donald Trump’s administration signalling support for crypto innovation. This is prompting India to reassess its approach.
Industry leaders suggest creating regulatory sandboxes where startups can test decentralized applications (dApps), DAOs, and tokenized assets without immediate tax burdens. "If regulations continue tightening without incentives, India risks losing talent, capital, and its place in the global Web3 race," says Alankar Saxena of Mudrex.
Conclusion
India’s crypto journey is at a critical juncture. While regulation is essential, a balanced approach is key. Without a clear, supportive framework, the country may continue to witness a capital exodus and stifled innovation. For now, domestic investors are caught between compliance pressures and the lure of more flexible offshore options—hoping that India’s tax rules evolve to meet the demands of a rapidly transforming digital economy.
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