Offshore exchanges, private wallets and DeFi tools raise concerns over tax compliance and enforcement
India’s tax authorities have reiterated concerns about the growing complexity of cryptocurrency transactions, warning that certain crypto practices could undermine effective tax enforcement. The caution comes as digital asset adoption increases while regulatory clarity remains limited.
Offshore Exchanges and DeFi Complicate Oversight
During a recent parliamentary standing committee on finance, officials from the Income Tax Department (ITD) highlighted risks associated with offshore crypto exchanges, private wallets, and decentralized finance (DeFi) tools. These mechanisms enable anonymous, borderless and near-instant value transfers, often without involvement from regulated financial intermediaries. According to officials, this makes it difficult to trace transactions and identify taxpayers.
Cross-Border Activity Limits Tax Enforcement
Authorities emphasized that crypto transactions spanning multiple jurisdictions pose serious challenges. Tracking ownership and reconstructing transaction chains for tax assessment is described as virtually impossible in many cases, even with recent efforts to improve international information sharing.
India’s Crypto Tax Framework
India currently imposes a flat 30% tax on crypto gains, along with a 1% tax deducted at source (TDS) on every transaction, regardless of profit or loss. While crypto trading is legally permitted under this regime and several exchanges are approved to operate, losses cannot be offset, creating what industry participants describe as friction rather than fairness.
With adoption rising and dozens of exchanges approved in recent years, India’s crypto ecosystem stands at a critical juncture. Authorities continue to balance innovation with concerns over tax compliance and financial transparency.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.