A TIOL study reveals that over 90% of India-linked crypto trading has moved to offshore platforms, exposing significant gaps in the country’s VDA tax framework and enforcement system.
04th Dec, 2025
As nations across the world move steadily toward integrating cryptocurrencies into their formal financial systems, India is grappling with a critical challenge — a huge volume of crypto activity by Indian users is slipping outside its tax radar.
A fresh analysis 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 revealed that Indian traders routed an estimated ₹4.88 lakh crore worth of virtual digital asset (VDA) transactions through offshore exchanges during FY24–25.
This new assessment echoes earlier findings by the Esya Centre, which had calculated offshore crypto trades worth ₹2.63 lakh crore in the previous year. Collectively, the data paints a stark picture: while Indians remain active participants in the global crypto ecosystem, the majority of their trading has moved beyond the effective reach of India’s tax system.
How Policy Led to Offshore Migration
TIOL attributes this trend to the Finance Act 2022, which introduced India’s special crypto tax regime. The package included:
- 30% flat tax on gains
- No provision for offsetting losses
- 1% TDS on every trade above a minimal threshold
These measures were introduced to curb speculation and ensure better documentation of transactions. However, the results tell another story.
Despite substantial trading volumes, formal revenue collected has been limited:
- ₹706 crore in capital gains tax (FY22–23 & FY23–24 combined)
- ₹338 crore in TDS
Offshore Platforms Capture Over 90% of Trading
Using traffic analysis, order-book data and Binance P2P snapshots, TIOL reconstructed India-linked activity across global crypto exchanges. The findings show:
- Domestic exchanges handled only ₹45,000 crore in trades
- Offshore platforms processed over 90% of India-related volume
- This translates to ₹4.88 lakh crore being traded outside India’s tax reach
Some of these platforms are officially blocked in India but remain accessible through VPNs, enabling migration despite restrictions.
Huge Revenue Loss for India
The numbers reveal the scale of the tax leakage:
- Over ₹11,000 crore in uncollected TDS since July 2022
- Around ₹4,877 crore of “missing” TDS in just one recent year
- Potential capital gains tax losses: ₹36,000 crore
- Projected offshore trades over next five years: ₹39.9 lakh crore
- Estimated TDS loss by FY2030: ₹39,971 crore
Previous studies reinforce the same concerns. Esya’s “Taxes and Takedowns” report highlighted a 92% fall in domestic exchange usage, estimating ₹3,493 crore in uncollected TDS. A NALSAR University study noted a 97% drop in domestic volumes and possible revenue loss of ₹2,489 crore.
Rise of P2P Trading Channels
A major chunk of activity has shifted to P2P networks, which facilitate direct buyer-seller interactions with payments routed via UPI or bank transfer. Exchanges are used only for holding crypto in escrow, making oversight even harder.
TIOL also points out a surge in Indian traffic to blocked global platforms, further exposing enforcement limitations.
TIOL’s Recommendations
To plug these widening gaps, the report suggests:
- Amending Section 194S to mandate TDS deduction by both domestic and foreign exchanges serving Indian users
- Ensuring compliance even if the exchange does not handle the rupee leg
- Aligning VDA taxation with traditional asset classes
- Strengthening annual reporting norms for better monitoring and revenue capture
As the debate around crypto regulation evolves, the report underscores an urgent need for India to recalibrate its tax framework to prevent further erosion of revenue and regain oversight over a rapidly expanding digital asset economy.
