India's financial authorities are reiterating their profound concerns regarding cryptocurrency transactions, emphasizing the substantial challenges these digital assets pose for effective tax enforcement and revenue collection. This renewed scrutiny highlights the ongoing struggle to integrate the fast-evolving crypto landscape within traditional tax frameworks.
Obstacles to Crypto Tax Enforcement
During a recent parliamentary committee session, India's Income Tax Department (ITD), under the Central Board of Direct Taxes (CBDT), detailed the significant hurdles in taxing virtual digital assets (VDAs). The ITD specifically pointed to offshore exchanges, private wallets, and decentralized finance (DeFi) tools as major factors complicating the detection of taxable income. Officials noted that the "anonymous, borderless, and near-instantaneous" nature of crypto transfers allows for fund movement without reliance on regulated financial intermediaries. Moreover, the multi-jurisdictional involvement in VDA activities makes tracking transactions and identifying holders for tax purposes "practically impossible," severely limiting the ability of tax officials to perform adequate assessments.
India's Ambiguous Tax Landscape
Despite these enforcement complexities, India has implemented a stringent tax regime for cryptocurrencies, applying a flat 30% tax on all profits from crypto asset activities, complemented by a 1% Tax Deducted at Source (TDS) on all transfers, irrespective of profitability. While this framework officially permits crypto trading and has seen major platforms like Coinbase gain approval for operation in 2025, the government's overall position towards cryptocurrencies remains cautious and somewhat ambiguous. Local industry executives acknowledge the growing adoption within India's crypto ecosystem but criticize the current tax framework, particularly its failure to allow for loss offsets, which they argue creates "friction rather than fairness" and hinders the industry's growth.
