India Faces Crypto Tax Evasion as Traders Shift Offshore and Exploit Loopholes, Industry Calls for Tax Reform and Tighter Oversight
India’s cryptocurrency market is under pressure as heavy crypto taxes—specifically a 30% capital gains tax and a 1% transaction tax (TDS) introduced in 2022—have driven trading volume offshore and led to widespread regulatory evasion. While industry leaders are lobbying for tax cuts and clearer regulation to revive domestic trading and strengthen oversight, traders have found multiple ways to bypass the 1% TDS: utilizing offshore exchanges such as KuCoin, MEXC, and Gate.io; trading on decentralized exchanges (DEXs) like Uniswap and PancakeSwap to escape KYC and reporting requirements; and conducting direct peer-to-peer (P2P) transactions on platforms like Binance P2P and LocalBitcoins. Some also disguise wallet-to-wallet transfers as exempt gifts. As a result, 90% of Indian crypto assets are held offshore, and official TDS collection has dropped 42% year on year. The surge in wallet-to-wallet transfers—up 60% in 2024 according to Chainalysis, often funneled to offshore exchanges—highlights ongoing compliance gaps and the challenge for Indian tax authorities, who face limited digital forensic capabilities. Regulators are considering stricter KYC, participation in global information exchanges like OECD’s CARF, and mandatory wallet registration. Until reforms are enacted, ongoing loophole exploitation could continue to hurt market transparency and domestic compliance but may sustain offshore liquidity and P2P market activity. Any regulatory or tax changes will likely have significant implications for Indian crypto traders and the country’s overall digital asset ecosystem.
Neutral
The news highlights extensive tax evasion and capital flight from India’s crypto market due to high taxation and regulatory challenges. While this undermines the domestic market, it does not directly impact cryptocurrency prices globally. Instead, it leads to a shift of Indian trading volume to offshore and decentralized exchanges, sustaining broader liquidity but reducing domestic transparency and compliance. Calls for regulation and potential tax cuts could eventually spur local volumes and create bullish sentiment if reforms materialize. However, the current status quo—continued evasion and regulatory uncertainty—yields a neutral price impact for major cryptocurrencies, as trading activity persists but merely migrates to less regulated venues. Traders should monitor for signs of legislative change, as meaningful reforms could shift sentiment.