The rapid adoption of cryptocurrencies in India has brought along its ecosystem of opportunities and challenges. With retail investors exploring digital assets to enterprises using blockchain technology for innovative financial solutions, the sector has mushroomed in the last ten years. As the market matures, questions relating to taxation, regulatory oversight, and compliance begin to emerge loud and clear. Fair and consistent taxation has been one of the pressing concerns from the point of view of the policymakers in a world where digital assets move across borders with remarkable ease. The delicate balance between fostering innovation and protecting national revenue streams has placed India at a pivotal juncture in shaping its crypto taxation landscape.
By the end of 2025, the need for a coherent and enforceable crypto taxation regime in India has acquired critical urgency. For years, India's domestic crypto industry has raised alarms over loopholes, especially regarding offshore platforms that operate freely in India while flouting the country's tax and compliance obligations. This concern was brought to the fore in the Parliament when Union Minister of State for Finance Pankaj Chaudhary states that It has been observed by the Government that certain offshore cryptocurrency exchanges serving Indian users are not complying with the TDS provisions prescribed in the Income Tax Act.
The matter extends beyond a technical compliance gap. It may result in future tax liabilities for Indian users, puts compliant Indian businesses at a disadvantage, and poses serious national security and revenue risks.
In the same reply to Parliamentary Question No. 1194, the government also clarified that TDS requirement would apply on every transaction, including those carried out on offshore platforms, whenever the income is chargeable to tax in India. This positions non-compliance by foreign entities as a violation of India’s financial regulatory framework.
Impact on India's Domestic Crypto Industry and Users
The implications of non-compliance carry broader industry and user-level consequences. Domestically regulated exchanges, as prescribed by the law, deduct 1 percent TDS on each transaction. Offshore operators face different compliance requirement, which can influence trader preferences.
Key consequences include:
Regulatory arbitrage
Reduced domestic visibility
Increased risks
The potential fiscal implications are significant. A report by the TIOL Knowledge Foundation pegs the uncollected TDS from offshore exchanges at Rs 40,000 crore for the next five years. On the other hand, the government informed in parliament that compliant Indian exchanges contributed a meager ₹511.83 crore in the two financial years FY 2022–2024. This contrast provides the extent of revenue leakage and pressing need for enforcement of crypto tax rules.
The way forward: Enforcement cannot wait
The government has now publicly acknowledged the structural gap that enables offshore players to evade Indian tax laws. This recognition may potentially lead to stronger corrective measures aimed at:
Restoring equity between domestic and offshore platforms.
Protecting users from financial and legal risks.
Safeguarding national revenue streams.
It is imperative that India ensures the enforcement of existing rules on all entities serving users in India, irrespective of their domicile. Equally, stringent penalties and criminal provisions need to be prescribed for willful non-compliance by offshore platforms.
Repeated non-compliance may require regulators to reconsider whether such platforms should continue serving Indian users. At the same time, a clear regulatory framework can bring about alignment in taxation, compliance, and user protection-thereby reducing incentives for users to migrate to unregulated markets. At this stage, enforcement is expected to play a key role in closing existing gaps. In the absence of decisive regulatory action, offshore entities will continue to operate within loopholes at the risk of financial security for Indian users and lasting harm to India's economic interests.
India's crypto ecosystem, on its part, has been demanding regulations that protect consumers and provide a level playing field. But with the government now conceding the magnitude of offshore non-compliance, the requirement of urgent regulatory intervention is now beyond debate. The debate is no longer if India should act but how fast in front of risks that deepen with every passing day.