India's Crypto Tax Overhaul: Implications for Global Exchanges and Investors

India’s 2025 cryptocurrency tax overhaul has become a pivotal moment for global exchanges and investors, reshaping compliance strategies and market expansion dynamics. The Central Board of Direct Taxes (CBDT) has maintained a 30% flat tax on capital gains and a 1% tax deducted at source (TDS) per transaction, policies that have driven trading volumes offshore by 90%–95% since 2022 [1]. These measures, coupled with the absence of loss offsetting provisions, have stifled liquidity and innovation, prompting a reevaluation of India’s position in the global crypto ecosystem.

Strategic Compliance Challenges

The CBDT’s enforcement efforts, including the use of AI-driven tools like Project Insight and the Non-Filer Monitoring System (NMS), have intensified scrutiny on unreported transactions. Over 44,000 traders received compliance notices, and the government recovered ₹705 crore in taxes from unreported crypto income [2]. To adapt, global exchanges are recalibrating their strategies. Platforms like OKX have exited India, while others are relocating operations to Dubai or introducing products such as crypto futures and options to mitigate TDS burdens [3]. The lack of a unified regulatory body and the absence of loss carry-forward provisions further complicate compliance for Indian traders, pushing smaller exchanges to consolidate or shut down [4].

Market Expansion Opportunities

Despite these challenges, India’s crypto market remains a strategic frontier. The proposed Crypto-Asset Reporting Framework (CARF), aligned with OECD guidelines, aims to enhance transparency while balancing tax integrity with market growth [3]. Meanwhile, the Crypto-Assets and Regulation of Online Systems (COINS) Act, which seeks to establish the Crypto Assets Regulatory Authority (CARA), could attract institutional capital by enforcing proof-of-reserves and investor protections [5].

Global competition is intensifying. Jurisdictions like Hong Kong, Japan, and South Korea are advancing structured regulatory models, while India’s neighbors—Pakistan and the UAE—are adopting more crypto-friendly policies [1]. For exchanges, the key lies in navigating India’s evolving landscape: those that prioritize transparency, compliance, and localized product innovation may capture market share as the sector matures.

The Path Forward

The CBDT’s consultations with industry stakeholders signal a potential shift toward a more balanced framework. Proposals include lowering TDS to 0.1%–0.5% and allowing loss carry-forwards, which could align India with global standards and curb the exodus of trading activity [1]. However, the government’s emphasis on tax integrity over market flexibility remains a sticking point. For investors, the risk-reward calculus hinges on regulatory clarity and enforcement efficacy.

India’s crypto market, despite its turbulence, retains immense potential. As the world’s leader in crypto adoption, the country’s regulatory trajectory will likely influence global competition for talent, capital, and innovation. For exchanges and investors, the challenge is to balance compliance with agility, ensuring they remain positioned to capitalize on India’s next chapter in digital assets.

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] India Escalates Crypto Tax Enforcement With Over [https://www.mitrade.com/au/insights/news/live-news/article-3-1022641-20250808]
[3] Stablecoins in Japan and China, India mulls crypto tax [https://cointelegraph.com/magazine/japan-china-stablecoins-india-crypto-tax-asia-express/]
[4] India's exchanges face consolidation in 2025 due to harsh taxation [https://coingeek.com/india-exchanges-face-consolidation-in-2025-due-to-harsh-taxation/]
[5] India's Crypto Tax Overhaul: Fighting Offshore Exodus or Sinking Global Relevance [https://www.ainvest.com/news/india-crypto-tax-overhaul-fighting-offshore-exodus-sinking-global-relevance-2508/]