India’s 30% Tax and 1% TDS Drive $42B Crypto Exodus India’s Crypto Sector Stifled by High Taxes Regulatory Gaps India Crypto Users Shift $42B Overseas Amid 30% Tax Burden

India’s cryptocurrency sector is under increasing strain as high taxes and regulatory ambiguity threaten to undermine its potential for innovation. Former Member of Parliament Ritesh Panday has reentered the debate, urging the government to reduce the 30% tax on crypto profits, eliminate the 1% tax deducted at source (TDS) on transactions, and establish clear legal frameworks to foster Web3 development. His intervention highlights growing concerns over the sector’s sustainability, as investors and startups face mounting compliance costs and a lack of structured incentives.

Panday emphasized that the current tax regime creates unnecessary barriers for users. He cited the example of non-fungible token (NFT) transactions, which require three steps—buying crypto, transferring to a wallet, and making a purchase. Under existing rules, the 1% TDS is applied at each stage, compounding administrative hurdles. “This policy stifles innovation and could derail India’s youth-driven Web3 ecosystem,” he warned, advocating for a regulatory environment that supports, rather than hinders, technological advancement.

The financial burden on users has intensified since July 2025, when Bybit began imposing an 18% goods and services tax (GST) on crypto services, including trading and staking. CoinDCX CEO Sumit Gupta revealed that the 1% TDS rule has already driven over 5 million Indian users to offshore platforms, shifting $42 billion in trading volume abroad between July 2022 and July 2023. This migration has cost the government an estimated $4.2 billion in lost revenue, with only $31 million collected via TDS during the same period.

Regulatory gaps exacerbate the challenges. While India has not yet enacted a comprehensive crypto law, the absence of real-time tracking mechanisms for crypto income reporting raises concerns about tax compliance. Tax officers are receiving training in blockchain and digital forensics, but experts question whether these efforts will keep pace with the fast-evolving crypto landscape. Meanwhile, security breaches at major exchanges like CoinDCX and WazirX have highlighted vulnerabilities in user asset protection, further eroding confidence.

Amid these challenges, Hashed Emergent has proposed the COINS Act 2025, a rights-based framework aimed at balancing investor protection with innovation. The draft legislation emphasizes self-custody rights, tax reforms, and the creation of a dedicated regulator. Though not yet law, the COINS Act represents a potential blueprint for India to position itself as a Web3 leader. Panday and industry stakeholders argue that such measures are critical to attracting institutional capital and global partnerships, which remain elusive due to regulatory uncertainty.

The debate over India’s crypto strategy mirrors a global trend as nations weigh the risks and opportunities of digital assets. While countries like the UAE and Singapore have adopted favorable tax policies and regulatory sandboxes to attract Web3 talent, India’s current approach risks sidelining its position in the next phase of the digital economy. Without meaningful reforms, the nation may struggle to retain its growing tech workforce and compete in a landscape where regulatory agility and investor confidence are key differentiators.

Panday’s call for action underscores a broader consensus that the status quo is unsustainable. As policymakers deliberate, stakeholders will watch closely for signals that the government is willing to collaborate with industry leaders to craft a balanced, forward-looking strategy. For now, the path to a thriving Web3 ecosystem in India remains clouded by high taxes, fragmented oversight, and the exodus of users to more crypto-friendly jurisdictions.