An Indian sells 100,000 rupees’ worth of Bitcoin, makes no profit, and sees 1,000 rupees disappear from their account first.
That money is called TDS: tax deducted at source. It takes 1% of the transaction value, regardless of whether you make a profit or a loss. It came into effect in April 2022. Three months later, a second rule was added: profits are taxed at 30%, and losses on one transaction cannot be offset against gains on another. The stated aim, set out in the documents, was to leave a record of every transfer and bring the entire industry into the reporting system.
Four years later, the trail has led elsewhere.
A report published this month by the TIOL Knowledge Foundation includes a telling comparison. Last fiscal year, Indians traded around 9 trillion rupees’ worth of crypto on overseas exchanges.
Trading on licensed domestic platforms amounted to 514.46 billion rupees. Offshore platforms accounted for 95%. An earlier study by the Esya Centre found that in the four months after TDS took effect, trading volumes on domestic exchanges fell by as much as 81%.
The tax base moved offshore, and the tax revenue went with it.
Over the past few years, the Indian government has collected 4.37 billion rupees in taxes from crypto activity. India has around 39 million crypto investors, which works out to just over 100 rupees per person.
The annual estimate for capital outflows, meanwhile, is 6.1 billion dollars. The P2P trend is even more direct: over the past nine months, visits by Indian users to one offshore P2P platform rose by 73%, while the volume of conversions to buy crypto with rupees grew about 3.6 times.
My view is that this system gets the sequence backwards. It treats crypto trading as income to be captured, even though most on-chain trading generates no income at all; it generates liquidity. Taxing turnover doesn’t make addresses disappear—it drives away market makers and arbitrage traders. Once those two groups leave, order books thin out and slippage grows, leaving everyone else to follow. When they’re all trading offshore, the 1% can no longer be collected, and the 30% can only be levied on the portion people voluntarily report.
The Reserve Bank of India takes a much harder line than the tax authorities. Midway through this year, it reiterated its support for a complete ban on crypto trading and ownership, while issuing guidance urging banks to reduce their exposure to such businesses. One government body wants to tax the market; another wants to eliminate it. Both are pushing in opposite directions on the same market.
I don’t know which provisions will be changed in the tax review scheduled for the second half of 2026. The industry’s proposal is to lower TDS to 0.01% and allow losses to be offset. Its accompanying estimate says this could bring in an additional 1.8 trillion rupees in capital gains tax over five years. I can’t verify that estimate. It assumes money will flow back—and whether it does will also depend on whether banks are willing to let rupees move in and out smoothly.
In four years, an emerging market has shown that when you tax high-frequency trading at 1%, what gets drained most easily isn’t the tax base. It’s market depth.
$BTC $ETH $USDC
#印度 #加密税 #监管 #Liquidity
That money is called TDS: tax deducted at source. It takes 1% of the transaction value, regardless of whether you make a profit or a loss. It came into effect in April 2022. Three months later, a second rule was added: profits are taxed at 30%, and losses on one transaction cannot be offset against gains on another. The stated aim, set out in the documents, was to leave a record of every transfer and bring the entire industry into the reporting system.
Four years later, the trail has led elsewhere.
A report published this month by the TIOL Knowledge Foundation includes a telling comparison. Last fiscal year, Indians traded around 9 trillion rupees’ worth of crypto on overseas exchanges.
Trading on licensed domestic platforms amounted to 514.46 billion rupees. Offshore platforms accounted for 95%. An earlier study by the Esya Centre found that in the four months after TDS took effect, trading volumes on domestic exchanges fell by as much as 81%.
The tax base moved offshore, and the tax revenue went with it.
Over the past few years, the Indian government has collected 4.37 billion rupees in taxes from crypto activity. India has around 39 million crypto investors, which works out to just over 100 rupees per person.
The annual estimate for capital outflows, meanwhile, is 6.1 billion dollars. The P2P trend is even more direct: over the past nine months, visits by Indian users to one offshore P2P platform rose by 73%, while the volume of conversions to buy crypto with rupees grew about 3.6 times.
My view is that this system gets the sequence backwards. It treats crypto trading as income to be captured, even though most on-chain trading generates no income at all; it generates liquidity. Taxing turnover doesn’t make addresses disappear—it drives away market makers and arbitrage traders. Once those two groups leave, order books thin out and slippage grows, leaving everyone else to follow. When they’re all trading offshore, the 1% can no longer be collected, and the 30% can only be levied on the portion people voluntarily report.
The Reserve Bank of India takes a much harder line than the tax authorities. Midway through this year, it reiterated its support for a complete ban on crypto trading and ownership, while issuing guidance urging banks to reduce their exposure to such businesses. One government body wants to tax the market; another wants to eliminate it. Both are pushing in opposite directions on the same market.
I don’t know which provisions will be changed in the tax review scheduled for the second half of 2026. The industry’s proposal is to lower TDS to 0.01% and allow losses to be offset. Its accompanying estimate says this could bring in an additional 1.8 trillion rupees in capital gains tax over five years. I can’t verify that estimate. It assumes money will flow back—and whether it does will also depend on whether banks are willing to let rupees move in and out smoothly.
In four years, an emerging market has shown that when you tax high-frequency trading at 1%, what gets drained most easily isn’t the tax base. It’s market depth.
$BTC $ETH $USDC
#印度 #加密税 #监管 #Liquidity