Kiran Vivekananda

The tax framework for crypto in India was brought about to: - enhance visibility into transactions, - enhance tax revenue, and - curtail growth of digital assets trading. However, as per a recent report published by TKF [1], the framework has not met any of its objectives. For some time now, India has been one of the largest crypto-adoption markets in the world. While the headline that “India is No. 1 globally” is not strictly accurate in absolute terms, the reported trading-volume data places India at the top in APAC [2] - ahead of Japan and Australia - comparable to leading developed markets. The demand for crypto as a tradable asset class is real, broad-based, and expanding. In fact, adoption and activity have doubled year-on-year - but a large portion of this growth is now taking place on offshore exchanges. The core policy problem is asymmetric enforcement. Domestic exchanges deduct TDS and report data. Offshore exchanges do neither. The result is predictable: users and liquidity migrate offshore, beyond the tax net. Switching costs are effectively zero - much like the post-ban migration observed in China, where firewalls did little to prevent traders accessing offshore venues [3]. This behavioural shift is now visible in numbers. 1. Between Oct ’24 - Oct ’25, Indians traded an estimated ₹4.87 lakh crore on offshore platforms. 2. At a 1% TDS, this implies ₹4,877 crore of uncollected TDS in just one year. 3. Since the introduction of the TDS framework in 2022, the cumulative leakage has now crossed ₹11,000 crore. Capital-gains taxation reflects the same pattern. At a 30% rate without loss set-off, the incentive to report is weak. Based on offshore trading volumes, India has already lost approximately ₹36,000 crore in capital-gains taxes since 2022. The solution is not more restrictions, it is better design. A calibrated framework - low TDS (0.01%–0.1%) + SFT-style reporting across all exchanges (domestic and offshore) - can rebuild transactional volumes and widen the tax base. In parallel, India needs a rational capital-gains regime for crypto: - LTCG/STCG parity with other asset classes, - loss set-off and carry-forward, and - consistent treatment now that courts recognise VDAs as “property.” [4] Such a regime would bring activity back into the formal system, expand compliance, and increase revenue - without stifling innovation. Even if India does not want to fully regulate this sector today, it is essential to upgrade the tax framework and align it with global standards. Bring users onshore. Bring compliance onshore. Bring revenue onshore.