India has been experiencing a significant loss in tax revenue due to its current crypto tax policies, according to a report by the Esya Centre. The country missed out on ₹6,000 crore in taxes as crypto traders shifted to foreign platforms to avoid the 1% TDS (Tax Deducted at Source) introduced by the government in July 2022. The situation could worsen as an additional ₹17,700 crore may be lost over the next five years if policies remain unchanged.
Despite the government’s efforts to regulate trading and collect taxes, Indian investors have increasingly turned to offshore exchanges, leading to a 77% rise in activity on foreign platforms between December 2023 and October 2024. Even though the government blocked nine major offshore platforms in January 2024, only one has complied with TDS rules, prompting traders to find ways to sidestep restrictions using VPNs and alternative apps. This has resulted in a disparity between the growth of trading activity on local exchanges (21%) and foreign platforms.
In order to address the tax revenue loss and attract traders back to Indian platforms, the Esya Centre has proposed several key changes. These include lowering the TDS rate to 0.01% to alleviate the financial burden on traders and enhance the appeal of local exchanges, amending tax laws to ensure compliance from offshore platforms operating in India, and simplifying regulations to promote registration and operation of foreign platforms under local laws.
By implementing these reforms in the upcoming budget, India could potentially recover ₹9,169 crore to ₹18,338 crore in tax revenue over the next five years. This move is expected to not only bolster the domestic crypto ecosystem but also discourage traders from relying on foreign platforms for transactions. With a balanced and trader-friendly tax policy in place, India can capitalize on the growth of the crypto market, strengthen investor trust, retain capital within the country, and maximize the potential of the crypto economy.
