India’s Crypto Tax Overhaul: Fighting Offshore Exodus or Sinking Global Relevance?

India is reconsidering its stringent cryptocurrency tax policies amid concerns over declining market activity and offshore migration of crypto firms. The Central Board of Direct Taxes (CBDT), the country’s top tax authority, has initiated consultations with industry stakeholders to reassess the impact of the 30% flat tax on capital gains and the 1% tax deducted at source (TDS) on each transaction. These measures, introduced in 2022, have drawn criticism for stifling liquidity and innovation, with trading volumes reportedly dropping by 90%–95% in the immediate aftermath. In response, the CBDT has distributed a detailed questionnaire to crypto exchanges and service providers seeking insights on whether the current tax regime is deterring growth and if a new regulatory framework is needed [1].

Industry participants have raised concerns that the existing rules create a hostile environment for local traders and exchanges. The 1% TDS per trade is seen as a significant burden, while the inability to deduct losses from gains makes risk management challenging. Additionally, the lack of a single regulatory body overseeing crypto activities—whether it be the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), or the Ministry of Electronics and Information Technology (MeitY)—has contributed to regulatory ambiguity [3]. As a result, many firms have moved their operations overseas, where more favorable conditions prevail. The CBDT has also noted a shift in trading volume to offshore exchanges since the imposition of the 30% tax, raising concerns about capital flight and the loss of technological talent [1].

Beyond industry feedback, the CBDT has taken enforcement measures to ensure compliance. Over 44,000 traders have received notices for failing to disclose income from virtual digital assets (VDAs), as part of a broader crackdown. The NUDGE campaign, aimed at promoting voluntary compliance before punitive action is taken, reflects the government’s push to enforce tax discipline in the crypto space. Over the past two years, India has collected approximately ₹705 crore (around $83.5 million) in crypto taxes, while audits have uncovered an additional ₹630 crore in undeclared income [3]. The use of technology, including Project Insight and the Non-Filer Monitoring System (NMS), has enabled the CBDT to track transactions more effectively, improving transparency and reducing evasion [3].

Meanwhile, India’s neighbors are advancing with more structured approaches to crypto regulation. Major economies such as China Hong Kong, Japan, and South Korea have implemented or are in the process of drafting stablecoin frameworks, contrasting with India’s more cautious and fragmented stance. In particular, the U.S. has taken a proactive approach with the GENIUS Act, which aims to formalize dollar-backed stablecoins and reinforce the dominance of the U.S. dollar in the global crypto economy [2]. India’s current tax model, seen as among the most punitive in the world, risks further marginalizing the country from global trends and innovation [2].

Crypto industry representatives are advocating for reforms that would bring the sector in line with international practices. Key proposals include reducing the TDS rate to between 0.1% and 0.5%, allowing for loss carry-forward, and establishing a clear legal definition for VDAs. A unified regulatory body would also help streamline oversight and reduce compliance burdens. Without these changes, the industry warns that India risks losing out on the potential of the crypto ecosystem, with many firms choosing to operate from more crypto-friendly jurisdictions [3].

Source:

[1] India's Harsh Crypto Tax Under Review: CBDT Considers Major Policy Reset (https://www.ifcreview.com/news/2025/august/india-india-s-harsh-crypto-tax-under-review-cbdt-considers-major-policy-reset/)

[2] Stablecoins in Japan and China, India Mulls Crypto Tax (https://cointelegraph.com/magazine/japan-china-stablecoins-india-crypto-tax-asia-express/)

[3] CBDT's Proposals for Crypto Regulation in India (https://www.linkedin.com/pulse/cbdts-proposals-crypto-regulation-india-ricago-vai6c)