India Tax Body Flags Crypto Risks Over Offshore and DeFi Activity

TLDR

• The Income Tax Department of India has expressed concern over crypto transactions during a parliamentary finance committee meeting.
• Authorities said decentralized finance tools and offshore exchanges are making it harder to track taxable crypto income.
• Officials warned that cross-border crypto activity complicates jurisdictional enforcement and user identification.
• India currently imposes a 30% tax on all crypto profits along with a one percent tax deducted at source on transfers.
• The Financial Intelligence Unit has approved 49 crypto exchanges in fiscal year 2024 to 2025 for regulatory compliance.

India’s Income Tax Department (ITD) raised fresh concerns about cryptocurrency transactions during a recent high-level parliamentary finance committee meeting, citing increasing challenges in tax enforcement linked to digital assets, which are traded across decentralized and cross-border platforms without regulatory oversight.

Offshore Exchanges and DeFi Tools Trigger Red Flags

The ITD, under the Central Board of Direct Taxes (CBDT), pointed out the growing use of private wallets, offshore exchanges, and decentralized finance (DeFi) platforms that enable anonymous, instant, and borderless transactions. These tools allow users to bypass regulated financial systems, making it harder for authorities to track digital asset movement or assess income for taxation. Officials stated these cross-border activities complicate enforcement and weaken the department’s ability to ensure proper tax collection.

During the meeting, which also involved the Financial Intelligence Unit (FIU) and Department of Revenue, ITD representatives explained that multiple jurisdictions being involved makes tracing and verifying asset ownership difficult. “With such jurisdictional opacity, reconstruction of transaction chains is almost impossible,” officials reportedly said. As crypto users increasingly rely on international platforms, the Income Tax Department faces roadblocks in identifying taxable events and verifying crypto holders.

Despite data-sharing efforts among countries, the ITD noted that tracing individual users remains difficult. This is largely due to offshore exchanges and decentralized platforms lacking the same compliance standards as domestic financial institutions. The report also mentioned that recent international cooperation efforts have not yet translated into effective on-ground enforcement.

India Tax Framework and Crypto Trading Rules

India currently imposes a flat 30% tax on all crypto-related profits, regardless of whether the gains are short-term or long-term. In addition, a 1% Tax Deducted at Source (TDS) applies to every transfer involving virtual digital assets (VDAs), including losses. These taxes are enforced uniformly on both Indian and offshore exchanges registered with the Financial Intelligence Unit.

While the country does not ban cryptocurrency trading, the tax regime remains stringent, and no deductions for losses are allowed. Local crypto firms argue this creates operational challenges and disincentivizes small traders.

Coinbase, a US-based exchange, resumed Indian operations in 2025 after obtaining FIU approval. This aligns with the government’s move to regulate rather than prohibit digital asset activities. However, officials maintain that regulatory gaps persist, especially when VDAs move outside India’s tax net.

Agencies Highlight Need for Coordinated Oversight

The report titled “A Study on Virtual Digital Assets (VDAs) and Way Forward” was presented during the finance committee’s latest session. It outlined structural flaws in current oversight and the difficulty in implementing tax compliance across decentralized and offshore crypto ecosystems. Agency representatives emphasized that loopholes may expand unless unified global standards emerge soon.

Officials warned that lack of compliance by global platforms could erode tax collection efforts in fast-growing digital sectors. They flagged the need for stronger rules on KYC, exchange registration, and mandatory reporting standards for VDA transactions. Coordination between countries, they argued, must accelerate to prevent regulatory arbitrage by crypto users and entities.

The FIU confirmed that it approved 49 crypto platforms during fiscal year 2024–2025, showing that domestic interest in digital assets remains high. While these exchanges follow reporting guidelines, others operating from outside India pose detection risks. Authorities reiterated that crypto transactions can bypass controls unless strict tracking measures are adopted worldwide.

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