India's Crypto Tax Overhaul May Reshape Global Tech Competition

India is increasing its scrutiny of historical cryptocurrency activities and unreported assets, signaling a shift in the country’s approach to digital asset taxation and regulation. The Central Board of Direct Taxes (CBDT), India’s top tax authority, has initiated a formal consultation process with crypto companies and stakeholders to evaluate the impact of the current tax regime. This comes as the government seeks to address concerns that its 30% capital gains tax and 1% tax deducted at source (TDS) have been driving trading activity and innovation overseas. The CBDT has distributed a detailed questionnaire to exchanges and service providers, probing whether the current framework stifles liquidity and if the nation needs a new, more structured regulatory approach [1].

India’s aggressive tax policy, introduced in 2022, has been cited as a key factor in the exodus of trading volumes to offshore platforms. Major exchanges have reported a collapse in activity, with trading volumes dropping by 90%–95% within months of the policy’s introduction. The flat 30% tax on capital gains and 1% TDS on all transactions have been particularly controversial. These measures, among the harshest in the world, have not only impacted retail traders but also deterred institutional investment and technological innovation in the sector. The government’s initial stance was reinforced in 2018 when the Reserve Bank of India (RBI) banned banks from servicing crypto firms—a move overturned in 2020 by the Supreme Court. However, the central bank’s continued opposition to crypto remains a hurdle for broader regulatory reform [2].

The CBDT’s move to consult industry stakeholders represents a significant shift from the punitive approach that has defined India’s crypto policy for years. The questions posed in the questionnaire suggest a willingness to rethink the framework. Among the key issues being explored are whether the TDS rate is excessive, whether a flat 30% tax is sustainable, and whether offshore exchanges enjoy an unfair advantage. The consultation also seeks to quantify the volume of trading that has moved abroad since 2022 and assess compliance challenges related to TDS. These discussions indicate a potential pivot from a purely revenue-driven strategy toward a more balanced approach that could encourage growth in the sector [1].

While the CBDT’s outreach is a step in the right direction, many in the industry believe the government is responding too slowly to global trends. Countries like Hong Kong, Japan, and South Korea are advancing with stablecoin frameworks and broader crypto-friendly policies, while India remains in the early stages of a potential overhaul. The country’s tax authorities have collected significant revenue from crypto transactions but at the cost of liquidity and innovation. Meanwhile, neighboring Pakistan has moved swiftly to regulate crypto by legalizing Bitcoin mining and exploring the use of Bitcoin as part of a national reserve. With global adoption accelerating, India risks falling further behind if it does not adapt its policies quickly [1].

The broader implications of India’s tax strategy extend beyond the crypto sector. The government’s aggressive stance has prompted a wave of tax notices and audits related to unreported crypto activities, underscoring a growing enforcement focus on digital assets. The IRS has also been sending thousands of notices to crypto users, indicating that compliance is no longer optional for many investors. As the Department of Justice increases its criminal enforcement efforts, the pressure on investors to maintain accurate records and disclose holdings has intensified. This regulatory environment highlights the importance of robust accounting and tax planning for crypto-native enterprises and high-net-worth individuals managing complex digital portfolios [3].

Source: [1] INDIA: 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] Leading The Charge On Crypto-Accounting (https://www.forbes.com/sites/forbes-listmaker/2025/08/25/leading-the-charge-on-crypto-accounting/)