The Crypto Exodus: How India’s 1% TDS Backfired—and What’s Next

In a bid to strengthen oversight of the booming crypto market, the Indian government introduced a 1% Tax Deducted at Source (TDS) on all crypto transactions in July 2022. The intention was clear—bring transparency and improve tax compliance in a rapidly evolving sector. But the outcome was far from what regulators expected.

Instead of ushering in greater accountability, the move triggered a digital diaspora—sending users, volumes, and innovation fleeing to offshore platforms. A policy designed to regulate ended up accelerating dislocation.

Volume Crashed, Users Migrated

Within weeks of the TDS rollout, Indian crypto platforms suffered a staggering 70–90% decline in trading volumes, according to industry estimates. Between July 2022 and July 2023, more than $42 billion in trading volume shifted offshore. Over 5 million Indian users moved their wallets and trading activities to foreign platforms, lured by faster execution, fewer compliance barriers, and stronger privacy protections.

In trying to increase visibility, India may have inadvertently undercut its strategic foothold in the global digital asset ecosystem.

The Data Tells the Story

The market and fiscal fallout has been unambiguous:

• $42 billion+ in trading volume moved offshore
• 5 million+ Indian users exited domestic exchanges
• Only $31 million collected via TDS
• An estimated $4.2 billion in potential tax revenue lost

The policy’s design—taxing every crypto transaction at source—contrasts sharply with global standards. In jurisdictions like the U.S. and U.K., crypto is taxed on realized capital gains, not on every trade’s value. Likewise, Indian stock market day traders pay capital gains tax without facing any TDS.

This creates a fundamental inconsistency: crypto is the only major asset class in India subject to both TDS and capital gains tax—a framework that appears more punitive than pragmatic.

CARF: A Step in the Right Direction

Amid this policy turbulence, India is now aligning itself with a more sustainable and globally accepted approach. The country is preparing to implement the OECD’s Crypto-Asset Reporting Framework (CARF)—a multilateral initiative aimed at increasing transparency and curbing offshore tax evasion.

CARF is expected to:

• Expose undeclared offshore crypto holdings
• Limit regulatory arbitrage across jurisdictions
• Standardize international tax compliance norms
• Cover crypto-to-crypto, crypto-to-fiat, and retail payments through exchanges, brokers, and wallet providers

Slated for implementation in 2027, CARF aims to bring crypto reporting in line with traditional financial assets. India’s role in pushing for this framework during its G20 presidency underlines its commitment to establishing responsible yet forward-looking digital asset regulation.

Time for Policy Recalibration

India remains one of the world’s most dynamic crypto markets—home to millions of retail investors, a growing Web3 developer community, and a vibrant startup ecosystem. However, current tax structures risk pushing this energy toward more innovation-friendly jurisdictions.

The solution lies in crafting a balanced, predictable, and globally-aligned tax regime. This means:

• Taxing realized gains, not transactions
• Ensuring regulatory parity with other asset classes
• Creating policy clarity that encourages innovation, not flight

Countries like Brazil, South Korea, and the UAE are already experimenting with progressive models that focus on gains while offering legal clarity. India must not fall behind in this strategic race.

Compliance Is Critical

While the regulatory ecosystem evolves, compliance remains essential. Using VPNs, offshore wallets, or peer-to-peer platforms to bypass tax norms may appear viable in the short term—but global frameworks like CARF, FATF, and other G20-backed protocols are rapidly closing those escape routes.

As Sumit Gupta, Founder of CoinDCX, rightly notes: 

“I remain hopeful that India will evolve towards a more balanced and globally-aligned crypto tax regime in the near future. Until then, it would be wise for Indian users to stay compliant. Trying to evade taxes today could lead to steeper penalties tomorrow.”

A good article from @Cointelegraph covering the current crypto taxation situation in India and also referring to important data from a recent Esya’s report.

While India's 30% flat tax on crypto gains has been a key focus, the real challenges run much deeper:

-The 1% TDS… pic.twitter.com/UwzJnqn4n2

— Sumit Gupta (CoinDCX) (@smtgpt) June 25, 2025

A Crossroads for India’s Crypto Future

Crypto is no longer fringe—it is becoming foundational to the future of finance, trade, and technology. Whether India emerges as a global crypto hub or cedes ground to more agile jurisdictions will depend on its willingness to adapt.

With the right policy recalibrations, India can unlock billions in revenue, foster domestic innovation, and build global leadership in the Web3 economy.

India can either tax crypto into exile—or regulate it into leadership.
The choice, and the opportunity, are both urgent and clear.

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