India’s crypto space is facing a strange problem. Many traders are moving to offshore exchanges due to the high tax burden and strict policies of domestic exchanges. But this shift is affecting the country, with tax collection becoming difficult. Thus, the country is losing much of the potential crypto tax revenue. CoinDCX co-founder Sumit Gupta has highlighted this issue in his recent X post, calling attention to the need for changes in India’s crypto tax rules.
Driven by India’s current crypto tax rules, many traders are moving to offshore exchanges. The Income Tax Department of India charges 1% TDS on crypto transactions, along with a 30% tax on profits. The rules also do not allow traders to offset losses against gains.
This 1% TDS remains a major hurdle for active traders. It could reduce their available money for further trades, even when they are not making profits. As offshore platforms do not deduct this tax, it becomes a cheaper option for many traders. Thus, more trading activity moves outside India.
He stated that to attract more traders to domestic exchnages, the government should reduce the tax burden.
The CoinDCS co-founder believes that the Indian government needs to introduce changes to its existing crypto tax rules. He shared the TIOL Knowledge Foundation report, which stated that reducing the 1% TDS to 0.01% could help retain traders. With lesser tax liability, more traders will use domestic exchanges, coming back from offshore platforms.
The report also suggests allowing traders to offset crypto losses against gains and carry forward unused losses. It also recommends reconsidering the 30% tax rate and closing legal gaps that allow offshore platforms to avoid tax deductions.
Interestingly, the report stated that if the country reduced the 1% TSD, it could help the government collect around ₹1.26 lakh crore in capital gains tax over five years. If the government launches these changes, the amount could hit ₹1.81 lakh crore.
Notably, India has collected ₹1,096 crore in crypto TDS between FY23 and FY25. The TIOL Knowledge Foundation report revealed that about ₹19,049 crore in TDS has been missed by the government since the introduction of the crypto tax rules in July 2022.
The problem is mainly because more Indian traders are moving to offshore exchanges. In FY2025-26, the estimated uncollected TDS reached ₹9,001 crore. This is about 17.6 times the amount collected in FY25. Also, when political capital gains tax losses are included, the revenue loss surged to ₹57,147 crore.
(adsbygoogle = window.adsbygoogle || []).push({});The report shared by CoinDCX also compares India’s crypto tax rules with other jurisdictions, including major G20 nations. Most crypto hubs, including Hong Kong, Singapore, Switzerland, and the UAE, see crypto as a legal asset and allow investors to offset losses against gains.
Some countries even offer ways to reduce the tax burden when investors make losses. For example, the US allows eligible unused capital losses to be carried forward to future tax years. Japan has also passed legislation introducing a separate 20.3% tax rate for certain crypto income. But India holds a much stricter approach.
