TLDR

  • India’s Income Tax Department has voiced concerns about cryptocurrency transactions during a parliamentary finance committee meeting.
  • Authorities noted that decentralized finance tools and offshore exchanges are complicating the tracking of taxable crypto income.
  • Officials cautioned that cross-border crypto activity makes jurisdictional enforcement and user identification more complex.
  • India presently levies a 30% tax on all crypto profits, plus a 1% Tax Deducted at Source (TDS) on transfers.
  • The Financial Intelligence Unit approved 49 crypto exchanges for regulatory compliance in fiscal year 2024–2025.

India’s (ITD) expressed new concerns about cryptocurrency transactions during a recent high-level parliamentary finance committee meeting, pointing to growing tax enforcement challenges linked to digital assets traded on decentralized and cross-border platforms without regulatory oversight.

Offshore Exchanges and DeFi Tools Raise Concerns

The ITD, under the (CBDT), highlighted the rising use of private wallets, offshore exchanges, and decentralized finance (DeFi) platforms that enable anonymous, instant, and borderless transactions. These tools allow users to bypass regulated financial systems, making it harder for authorities to track digital asset movements or assess income for taxation. Officials stated these cross-border activities complicate enforcement and weaken the department’s ability to ensure proper tax collection.

During the meeting—which also included the (FIU) and Department of Revenue—ITD representatives explained that involvement of multiple jurisdictions makes tracing and verifying asset ownership difficult. “With such jurisdictional opacity, reconstructing transaction chains is almost impossible,” officials were reportedly quoted as saying. As crypto users increasingly rely on international platforms, the Income Tax Department faces barriers to identifying taxable events and verifying crypto holders.

Despite international data-sharing efforts, the ITD noted that tracing individual users remains challenging. This is largely because offshore exchanges and decentralized platforms lack the same compliance standards as domestic financial institutions. The report also mentioned that recent global cooperation efforts have yet to translate into effective on-the-ground enforcement.

India’s Tax Framework and Crypto Trading Rules

India currently imposes a flat 30% tax on all crypto-related profits, regardless of whether gains are short-term or long-term. Additionally, a 1% Tax Deducted at Source (TDS) applies to every transfer of virtual digital assets (VDAs)—including those resulting in losses. These taxes are enforced uniformly on both Indian and offshore exchanges registered with the Financial Intelligence Unit.

While India does not ban cryptocurrency trading, its tax regime remains strict, and no deductions for losses are allowed. Local crypto firms argue this creates operational hurdles and discourages small traders.

“The current system creates friction rather than fairness,” said Ashish Singhal, co-founder of CoinSwitch, during a recent industry discussion.

U.S.-based exchange Coinbase resumed Indian operations in 2025 after securing FIU approval. This aligns with the government’s approach of regulating—rather than prohibiting—digital asset activities. However, officials maintain that regulatory gaps persist, especially when VDAs fall outside India’s tax jurisdiction.

Agencies Stress Need for Coordinated Oversight

The report titled “A Study on (VDAs) and Way Forward” was presented during the finance committee’s latest session. It outlined structural flaws in current oversight and the difficulty of enforcing tax compliance across decentralized and offshore crypto ecosystems. Agency representatives emphasized that loopholes could expand unless unified global standards are established soon.

Officials warned that non-compliance by global platforms could erode tax collection efforts in fast-growing digital sectors. They flagged the need for stronger rules on KYC, exchange registration, and mandatory reporting standards for VDA transactions. Coordination between countries, they argued, must accelerate to prevent regulatory arbitrage by crypto users and entities.

The FIU confirmed it approved 49 crypto platforms during fiscal year 2024–2025, indicating sustained domestic interest in digital assets. While these exchanges follow reporting guidelines, those operating from outside India pose detection risks. Authorities reiterated that crypto transactions can bypass controls unless strict global tracking measures are adopted.