India’s crypto taxation policy is costing the nation dearly. According to a report by the Esya Centre, the country has already lost ₹6,000 crore in taxes as traders shifted to foreign exchanges. Without urgent reforms, this figure could balloon to a staggering ₹17,700 crore over the next five years.

Here’s a breakdown of what’s happening, why it matters, and how India can turn the tide on its crypto tax losses.

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Why Is India Losing Crypto Revenue?

In July 2022, India implemented a 1% TDS (Tax Deducted at Source) on all crypto transactions. While aimed at regulating the market, this policy inadvertently pushed traders to foreign platforms.

📊 Shocking Stats:

Indian traders shifted over ₹2,63,000 crore to offshore exchanges between December 2023 and October 2024.

Offshore exchange activity by Indians surged 77%, compared to just 21% growth on local platforms.

Even after the government blocked nine major foreign platforms in January 2024, only one complied with TDS rules. Traders bypassed restrictions using VPNs, alternative apps, and innovative trading techniques.

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The Crypto Exodus: Who Benefits?

Foreign platforms are the clear winners here, raking in trading volumes that should have stayed in India. This exodus weakens the domestic crypto ecosystem, undermining India’s potential to lead the global digital economy.

💡 The Root Cause:

India’s 30% tax on crypto profits, coupled with 1% TDS, makes trading locally unappealing. With no policy to protect losses, traders feel penalized for staying onshore.

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How Can India Stop the Bleeding?

The Esya Centre suggests bold reforms to retain crypto traders and recover tax revenue.

1️⃣ Lower the TDS Rate:

Reduce TDS from 1% to 0.01%.

Make trading less burdensome and attract traders back to Indian platforms.

2️⃣ Amend Tax Laws:

Update Sections 194S and 115BBH of the Income Tax Act.

Enforce compliance from foreign platforms operating in India, even without a physical presence.

3️⃣ Simplify Regulations:

Allow foreign exchanges to register under Indian laws.

Boost trust, increase transparency, and make compliance easier.

💰 Potential Gains:

Implementing these reforms in the next budget could generate ₹9,169 crore to ₹18,338 crore in revenue over five years.

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The Bigger Picture: Strengthening India’s Crypto Ecosystem

A balanced and trader-friendly tax policy is essential for India to unlock the full potential of its crypto market. Here’s how better regulations can transform the landscape:

Retain Revenue: Stop traders from moving offshore, ensuring tax stays within India.

Boost Trust: A stable, predictable tax regime fosters investor confidence.

Dominate the Market: Position India as a global leader in crypto innovation.

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India at a Crossroads: What’s Next?

India’s current crypto tax policies are a cautionary tale. However, with the right reforms, the nation can reclaim its position as a crypto-friendly hub. Lower taxes, simplified laws, and a trader-first approach are the keys to turning this crisis into an opportunity.

The question is: Will India seize the moment or let this billion-dollar industry slip away?

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