Indian Authorities Say Crypto Tax Enforcement Challenging, 30% Profit Unified Tax Hard to Implement

India’s tax authorities have reiterated concerns over the challenges of enforcing cryptocurrency-related taxes, citing the difficulties posed by offshore exchanges, private wallets, and decentralized finance (DeFi) tools. During a recent parliamentary committee meeting, the Income Tax Department (ITD) flagged the anonymous, borderless, and near-instant nature of crypto transactions, which hinder tax enforcement and make it hard to trace beneficial owners according to reports. These issues are compounded by the involvement of multiple jurisdictions, which the ITD described as making tracking and enforcement "virtually impossible" as stated.

A flat 30% tax on all crypto gains and a 1% tax deducted at source (TDS) on every transaction have been in place since 2022. However, the current system has been criticized for not recognizing losses and for generating "friction rather than fairness" according to analysis. The Bharat Web3 Association has called for reforms, including lowering TDS rates and allowing losses to be offset against gains as they have urged.

Industry leaders have warned that these policies are pushing crypto activity offshore, as traders and investors seek to avoid high taxes and limited banking access for Web3 firms according to industry leaders. Despite legal trading being allowed, many Indian startups have faced difficulties in opening and maintaining bank accounts, further complicating compliance and growth as reported.

Why Is Tax Enforcement in Crypto So Difficult?

Indian tax officials have emphasized that the use of offshore exchanges and private wallets makes it challenging to track transactions and identify holders for tax purposes according to official statements. The lack of regulated intermediaries and the anonymity of crypto transactions create enforcement hurdles as observed. According to the ITD, the use of decentralized platforms adds another layer of complexity, as it becomes difficult to even establish who owns the assets as the department noted.

This has led to calls for greater information-sharing between agencies to improve the ability of tax officials to reconstruct transaction chains and conduct proper assessments according to experts. However, efforts to improve data sharing have not been sufficient to overcome these challenges as analysis shows.

What Are the Industry's Main Demands for Reform?

The Bharat Web3 Association has urged the Indian government to reform crypto taxation ahead of the 2026 budget, arguing that the current regime is stifling growth as they have stated. Key demands include lowering the TDS rate, allowing losses to be offset against gains, and aligning crypto taxation with other asset classes as outlined.

Industry representatives also highlighted the need for clearer guidelines for banks to reduce uncertainty and enable stable banking access for crypto firms according to industry sources. They stressed that predictable access is essential for legitimate businesses to operate effectively as they have emphasized.

The association further called for a national regulatory sandbox for AI, Web3, and other emerging technologies, with time-bound approvals as they have proposed. This, they argued, would help distinguish speculative trading from enterprise blockchain use and infrastructure development as they have stated.

What Does This Mean for Investors and Market Activity?

The current tax framework has had a measurable impact on market participation, with rising TDS collections from crypto activity over the past three fiscal years according to data. However, industry estimates suggest that a growing share of trading has moved to offshore platforms due to high taxes and limited access to domestic banking as industry analysis shows.

For investors, the high tax rate and lack of loss recognition mean that the system creates "friction rather than fairness" according to reports. This has led to calls for a more balanced approach that aligns crypto taxation with other asset classes and provides clearer incentives for compliance as industry leaders have noted.

The 2026 budget is seen as a key opportunity for incremental reform, even if major legislation is not introduced as experts suggest. Industry observers believe that tax adjustments and policy signals could significantly influence market activity according to analysis.

What Is the Government's Stance and Next Steps?

Despite the challenges, India has not imposed a full ban on crypto, and trading remains legal as confirmed. However, the government has maintained a cautious and mixed approach, with high taxes and strict reporting requirements used to control activity rather than encourage it according to government sources.

The ITD has emphasized that the current focus is on tighter reporting, greater pressure on exchanges to comply, and increased scrutiny of offshore activity as stated. Broader legal clarity may still take time, but the department's comments make it clear that crypto is now being viewed mainly as a compliance issue as the department noted.

As the 2026 budget approaches, the government is expected to engage with industry stakeholders to consider potential reforms. However, any changes would need to be carefully weighed against potential revenue implications according to economic analysis. The outcome of these discussions will likely shape the future of India's crypto ecosystem and investor behavior in the coming year.