A TIOL study reveals that over 90% of India-linked crypto trades are moving to offshore platforms, resulting in massive TDS and capital-gains revenue losses for the government.
04 December 2025
As nations across the globe move toward formally incorporating cryptocurrency into their financial systems, India is confronting a pressing challenge—an overwhelming share of its crypto trading activity is taking place outside the purview of domestic tax authorities.
A new report by the TIOL Knowledge Foundation, titled “Taxation of Digital Assets in India – A Data-Driven Assessment of India’s VDA Tax Regime and its Market Impact,” has found that Indian users conducted an estimated ₹4.88 lakh crore worth of virtual digital asset (VDA) trades on offshore platforms during FY24–25.
This figure aligns with earlier estimates from the New Delhi–based Esya Centre, which had placed offshore trades by Indian users at ₹2.63 lakh crore in the preceding year. Combined, these findings indicate that although Indians continue engaging heavily in the crypto market, a major portion of this trading effectively bypasses India’s tax system.
Stringent Tax Rules Driving Users Offshore
The report links this shift to the Finance Act 2022, which imposed a strict taxation structure on crypto transactions. The framework includes:
- 30% tax on gains,
- No provision for loss adjustments,
- and 1% TDS on every trade above a very small threshold.
Despite the intent to curb excessive speculation and enhance reporting, collections have remained low—just ₹706 crore in capital gains tax and ₹338 crore in TDS across FY22–23 and FY23–24.
Global Exchanges Capture 90% of India-Linked Crypto Activity
Using global exchange web analytics, order book samples, and Binance’s rupee P2P data, TIOL reconstructed India-linked trading patterns. According to its findings:
- Indian-compliant exchanges handled only ₹45,000 crore in FY24–25.
- This represents a mere 8–10% of all crypto trades linked to Indian users.
- Over 90% of the volume, around ₹4.88 lakh crore, shifted to offshore platforms—including many banned in India but accessible through VPNs.
A Massive Tax Gap Emerges
The movement offshore has led to significant tax leakage. TIOL estimates:
- Over ₹11,000 crore in TDS on offshore trades remains uncollected since July 2022.
- In a recent 12-month window alone, ₹4,877 crore worth of TDS is missing.
- Combined potential losses on capital gains tax are roughly ₹36,000 crore.
If current behaviour continues, Indians may trade close to ₹39.9 lakh crore on overseas crypto exchanges over the next five years, resulting in nearly ₹39,971 crore of lost TDS revenue by FY2030.
Previous Studies Highlight Similar Trends
Esya Centre’s “Taxes and Takedowns” study had earlier observed that after the VDA tax regime was announced:
- Domestic exchange volumes crashed,
- 92% of Indian crypto trading moved offshore,
- and nearly ₹3,493 crore in TDS went uncollected.
Its later update pushed cumulative uncollected TDS beyond ₹6,000 crore, while a NALSAR University study noted a staggering 97% decline in Indian exchange volumes, causing a potential ₹2,489 crore revenue loss.
Rise of P2P Channels and Enforcement Gaps
Much of the migration has shifted to peer-to-peer networks, where payments are settled directly through UPI or bank transfers while exchanges serve only as escrow providers. TIOL additionally observed a resurgence in traffic from India to platforms legally blocked by the authorities, revealing the limitations of current enforcement strategies.
TIOL Calls for Major Policy Reforms
To plug the widening revenue gap, TIOL recommends:
- Amending Section 194S to mandate TDS deduction by both domestic and offshore exchanges serving Indian users—even if the rupee component is not handled by them.
- Aligning VDA tax treatment with that of other asset categories.
- Strengthening annual reporting norms to improve transparency and compliance.
As crypto adoption grows, the report underscores a critical warning: India must refine its regulatory approach or risk losing substantial tax revenue to offshore markets in the years ahead.
