Tax Turmoil: How India’s Crypto Regulations Are Driving Investors Abroad | Entrepreneur

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If cryptocurrency were an attendee at India’s economic dinner table, it would no longer crash the event—it would now have a designated spot, monitored, and required to present its ID. With the 2025 Budget, India is paving the way for streamlined rules and regulations, alongside a local dress code for exchanges within the USD 6.4 billion—and expanding—digital asset sector. As reported by CoinMarketCap, the global crypto market capitalization is approximately USD 3.33 trillion. By 2021, India had the highest number of crypto owners worldwide, with over 10.7 crore individuals invested in digital assets.

According to IMARC Group’s data, the domestic market is projected to grow from USD 2.6 billion in 2024 to over USD 13.9 billion by 2033. The sector is gaining traction across various segments and regions—much like Ashish Nagose from Nagpur, who views this asset class as a financial buffer for his family-owned flower shop during tough times. India’s attitude towards crypto is evolving, with differing opinions from Finance Secretary Ajay Seth, former RBI Governor Shaktikanta Das, and Finance Minister Nirmala Sitharaman.

The current tax framework for crypto includes a 30% tax on gains from virtual digital assets (VDAs), a 1% TDS (tax deducted at source), with no allowance for offsetting losses against other income. These regulations have prompted domestic investors to turn to foreign exchanges like Binance, KuCoin, Coinbase, Bitget, and Delta Exchange.

Migration to Foreign Exchanges

The 1% TDS has led to the migration of three to five million users to offshore platforms in 2023, according to Esya Centre, a tech policy think tank in Delhi. Traders may prefer offshore exchanges for various reasons, including lower taxes, more favorable regulations, or a wider selection of available cryptocurrencies. “While the onboarding process (in India) is relatively streamlined compared to many other countries, global platforms must first resolve any outstanding dues and comply with current financial obligations,” states Alankar Saxena, co-founder and CTO of Mudrex. Binance and KuCoin re-entered India after settling fines, while Coinbase received FIU approval for a relaunch in 2025.

Recently, Binance faced scrutiny over potential tax evasion as the Income Tax (IT) department sought clarification on whether the mandatory TDS was being collected. Investors have been asked to either provide proof of TDS or justify their failure to do so.

Domestic vs. Foreign Players

The majority of Indian users on offshore platforms often avoid TDS, either deliberately or out of ignorance. Meanwhile, Indian platforms like Mudrex and CoinSwitch ensure that TDS is appropriately deducted and remitted to the government, easing the burden on users. In December 2024, the Indian government discovered GST evasion totaling INR 824.14 crore across 17 cryptocurrency exchanges. Notably, Nest Services Ltd—linked to the Binance Group—reported alleged GST evasion of INR 722.43 crore. India’s crypto regulation appears to be functional but scattered.

While it addresses certain issues—like taxing profits and implementing GST or TDS—it lacks a comprehensive regulatory framework that mandates registration, licensing, or full compliance for all crypto platforms, especially those based overseas.

“In the absence of a clearly defined process for registration and tax collection, these platforms are likely to be labeled as non-compliant, putting their users at risk of legal penalties,” warns Avinash Shekhar, co-founder and CEO of Pi42. The crackdown on TDS involving Binance and others serves as a wake-up call for investors. There’s been a notable shift among retail cryptocurrency investors in India from offshore exchanges to domestic platforms.

“If you’re trading in India, using a local platform simplifies everything—better customer support, alignment with local laws, and reduced compliance hassles overall. It’s akin to choosing a service that communicates fluently with you—both linguistically and legally,” comments Balaji Srihari, vice president of CoinSwitch.

“Ultimately, establishing user trust is crucial, and local exchanges are well positioned to meet investor interests within the existing regulatory framework,” Saxena adds.

Is Ignorance Bliss?

Since 2022, industry stakeholders have expressed their hopes for a tax revision during pre-budget discussions, but to no avail. Shekhar believes that the lack of updates stems from the government “viewing it as a mechanism to track and oversee cryptocurrency transactions rather than as a form of revenue categorization,” which labels transactions as “unexplained cash credit” under the new Income Tax Act amendments, seeking a heightened tax rate of 60-70%. Koinx’s founder clarified that this issue arose due to a lack of buyer information, such as the PAN card on the user’s side.

Often, investors utilize different usernames on crypto exchanges and bank accounts, resulting in discrepancies that hinder transaction verification. For P2P transactions, the buyer is tasked with deducting TDS and remitting it to the government. Indian crypto traders are advised to keep comprehensive records to safeguard against hefty penalties in the future.

Looking Ahead

India is reevaluating its approach to crypto in light of changing perspectives on virtual assets worldwide, particularly influenced by U.S. President Donald Trump’s pro-crypto policy announcements. “If regulations continue to tighten without promoting innovation, India risks losing even more talent and capital,” notes Shekhar. Saxena feels that the government should create sandboxes for blockchain startups to trial decentralized applications (dApps), DAOs, and tokenized assets without immediate tax or regulatory burdens.

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