Last updated: October 28, 2026, 3:30 PM IST
Here's a number that should make policymakers uncomfortable: roughly 95% of India's crypto trading volume now happens on offshore platforms, according to a fresh report cited by TIOL. The figures doing the rounds are stark — about ₹9 lakh crore in Indian-linked trading on foreign exchanges, versus just ₹51,446 crore on domestic ones. And an estimated ₹57,147 crore in potential tax revenue never made it to the exchequer.
This isn't a new problem, but the report puts the sharpest numbers yet on a trend everyone's watched unfold since 2022. India's crypto tax regime — 30% on gains, 1% TDS on every transaction — was meant to bring the industry into the light. Instead, it pushed most of the activity into the shadows of offshore exchanges. Let's unpack what the report says, why it happened, and what it means for traders and for policy.
What the TIOL Report Actually Found
The headline numbers are hard to ignore. Of the total crypto trading attributed to Indian users, the overwhelming majority — around 95% — now flows through offshore platforms. Domestic exchanges, which once handled a healthy share, are left with a sliver: roughly ₹51,446 crore against the offshore ₹9 lakh crore.
The tax math is equally striking. The report estimates around ₹57,147 crore in lost potential revenue — money that would have been collected through TDS and capital gains taxes if that trading had happened on compliant Indian platforms. To put that in perspective, that's real budget money, the kind that funds actual government programmes.
Reporting on the findings, EtherWorld's coverage laid out the offshore-vs-domestic split, while InvestIn's deep dive into the tax angle explored how the 1% TDS in particular reshaped trader behaviour. Both point to the same conclusion: the policy achieved the opposite of its intent.
How the 1% TDS Broke Domestic Trading
To understand the exodus, you have to understand the mechanics of the 1% TDS (tax deducted at source) on crypto transactions, introduced in July 2022. On paper, 1% sounds small. In practice, for active traders, it's devastating.
Here's why: the TDS applies to every transaction, not just profits. If you're a trader doing 50 round-trips a day on thin margins — the bread and butter of crypto market-making and arbitrage — 1% off the top of each trade wipes out your edge completely. Your capital also gets locked up: TDS deducted across hundreds of trades sits with the government until you file returns and claim it back, which can take a year.
Combine that with the 30% flat tax on gains (with no offsetting of losses — lose money on one trade, make money on another, and you're taxed as if only the wins happened), and the rational response for any serious trader was obvious: move to an offshore exchange that doesn't deduct TDS. Binance, Bybit, OKX and others welcomed them with open arms.
Domestic exchanges saw volumes collapse — some reported drops of 90% or more in the months after TDS kicked in. The users didn't stop trading; they just stopped trading in India. The government got its 1% of nearly nothing, instead of normal tax revenue on everything.
The FIU Ban That Didn't Stick
The government's response to the offshore migration was to go after the foreign exchanges directly. In late 2023 and early 2024, India's Financial Intelligence Unit (FIU) issued show-cause notices to major offshore platforms and got several — including Binance — blocked at the ISP level or pulled from app stores for non-compliance with PMLA (anti-money-laundering) registration.
Binance eventually registered with the FIU and paid a penalty to resume operations. But here's the thing the TIOL numbers reveal: blocking URLs didn't bring traders home. VPNs, mirror sites, decentralised exchanges and P2P channels kept the offshore route wide open. You can block an app listing; you can't block a determined trader with a VPN and a Telegram group.
This is the core policy lesson, and it's an old one in economics: when you tax or restrict an activity that can easily move, the activity moves — it doesn't stop. India's crypto traders didn't quit; they just changed their exchange's jurisdiction. The domestic industry — exchanges, startups, jobs, tax revenue — absorbed the damage.
What Other Countries Do Differently
It's instructive to look at how other jurisdictions handled the same challenge. Nobody has a perfect system, but several found a middle ground India hasn't:
- Singapore: No capital gains tax for individuals on crypto, but strict licensing for exchanges. Result: a thriving compliant industry.
- UAE (Dubai): Zero personal income tax and a dedicated crypto regulator (VARA). Result: exchanges and talent flocking in — including from India.
- United States: Crypto taxed as property with normal capital gains rules — losses can offset gains, which is the single biggest difference from India's regime.
- Japan: Strict exchange licensing after the Mt. Gox disaster, but a workable tax framework that keeps trading onshore.
The common thread: these countries tax crypto, but they tax it in ways that don't make onshore trading economically irrational. India's combination — 30% flat, no loss offset, 1% TDS per transaction — is arguably the harshest major-economy regime in the world. The TIOL report is essentially the receipt for that policy choice.
What This Means for Indian Crypto Traders Right Now
If you're trading crypto from India today, the landscape is genuinely confusing, so let's be practical:
- Trading offshore doesn't make you tax-exempt. Indian tax residents owe tax on global income, including crypto gains on foreign exchanges. The 30% rate and 1% TDS obligations technically follow you — enforcement is the hard part, but the liability exists.
- FIU-registered platforms are the safer middle ground. Exchanges that registered with the FIU operate within India's AML framework. Using them keeps you on the right side of the compliance line.
- Keep records of everything. Every trade, every transfer, every wallet. If the tax department ever asks, "I didn't keep track" is not a defence.
- Don't confuse VPN access with legality. Accessing a blocked platform via VPN doesn't change your tax or FEMA obligations. It just adds another layer of risk.
And if you're weighing regulated onshore options for your money overall, our demat account guide walks through India's mainstream investment rails — stocks, mutual funds, ETFs — all inside the regulated system. For crypto specifically, the compliant route remains FIU-registered exchanges, and India's own digital currency experiment is a separate story worth knowing: check our Digital Rupee explainer in the Also Read box above.
Will Policy Change? The 1% TDS Debate Reignites
Every time numbers like these surface, the industry renews its ask: cut the TDS to 0.01%, allow loss offsetting, treat crypto like other capital assets. The arguments are well-rehearsed and, frankly, the TIOL data strengthens them considerably — the current regime demonstrably failed at its own goal of capturing revenue.
But policy change needs a political window. Crypto regulation in India has been stuck in a holding pattern for years — a comprehensive bill promised, delayed, promised again. The government's posture has been cautious-to-hostile, shaped by the RBI's deep scepticism of private cryptocurrencies.
What could shift things: the sheer scale of the revenue loss (₹57,147 crore is hard to ignore in any budget discussion), the G20 crypto framework India itself championed, and the slow realisation that the current approach taxes the compliant and misses the actual market. Whether that translates into action before the next budget cycle is anyone's guess — but the pressure is building, and reports like this one add fuel.
Frequently Asked Questions
What did the TIOL report find about India's crypto trading?
It found that roughly 95% of crypto trading by Indian users happens on offshore platforms — about ₹9 lakh crore offshore versus ₹51,446 crore on domestic exchanges — with an estimated ₹57,147 crore in lost tax revenue.
Why did Indian traders move to offshore exchanges?
Primarily the 1% TDS on every transaction (which destroys margins for active traders and locks up capital) combined with the 30% flat tax on gains with no loss offsetting. Offshore exchanges don't deduct TDS, making them economically rational choices for traders.
Is it legal for Indians to trade on offshore crypto exchanges?
Indian tax residents owe tax on crypto gains wherever they're earned, so offshore trading doesn't remove tax liability. Using FIU-registered platforms is the compliant route; accessing blocked platforms via VPN adds legal risk without removing tax obligations.
What is the 1% TDS on crypto?
Since July 2022, 1% tax is deducted at source on crypto transactions above certain thresholds. It applies per transaction (not just on profits), which hits high-frequency traders hardest and is widely blamed for the collapse of domestic exchange volumes.
Will India reduce crypto taxes?
The industry has long demanded a TDS cut (to 0.01%) and loss-offset provisions. Reports like TIOL's strengthen the case, but there's no official timeline — crypto policy remains in a holding pattern pending comprehensive regulation.
Sources
- EtherWorld — 95% of India's crypto offshore; ₹57,147 crore lost
- InvestIn — India crypto tax: trading offshore, TIOL report
My Personal Take
This report honestly makes me a bit sad, because it's such a clean example of good intentions producing the exact opposite result. The government wanted to tax crypto and legitimise it. Instead it got neither — the trading left, the tax didn't arrive, and the domestic industry got hollowed out. ₹57,147 crore in lost revenue isn't a rounding error; it's a policy failure with a number on it.
My bet? The TDS gets cut within the next budget cycle or two — not because of ideology, but because of arithmetic. When the data shows your tax is collecting 1% of nothing instead of a reasonable rate on everything, even the most cautious finance ministry starts doing the math. Until then, Indian traders will keep doing what rational people do: trade where the rules make sense.
0 Comments