India’s Tax Authorities Warn Crypto Gains Hard to Track Amid Regulatory Gaps
India’s financial authorities have raised fresh concerns over cryptocurrency transactions, emphasizing that certain crypto activities could make tax enforcement highly challenging.
During a recent parliamentary standing committee on finance, officials from the Income Tax Department (ITD), the Central Board of Direct Taxes (CBDT), the Financial Intelligence Unit (FIU), and the Department of Revenue highlighted risks tied to offshore exchanges, private wallets, and decentralized finance (DeFi) platforms (The Times of India).
The discussion was based on the report “A Study on Virtual Digital Assets (VDAs) and Way Forward.”
Offshore Exchanges and DeFi Pose Enforcement Challenges
ITD officials reportedly stressed that cryptocurrency transfers are “anonymous, borderless and near-instant”, enabling users to move funds without traditional financial intermediaries.
Transactions spanning multiple jurisdictions make it difficult to track taxable income and identify holders. The report noted that despite some efforts in international information sharing, reconstructing transaction chains remains “virtually impossible,” limiting tax authorities’ ability to assess crypto activity accurately (source).
India’s Crypto Tax Framework
India currently imposes a flat 30% tax on all cryptocurrency profits, in addition to a 1% tax deducted at source (TDS) on all transfers, whether or not they are profitable.
Despite this heavy taxation, cryptocurrency trading is legally permitted. In 2025, India approved the return of major U.S. exchange Coinbase, signaling cautious acceptance of crypto markets. However, the overall regulatory stance remains mixed and conservative.
Local executives note that India’s crypto ecosystem is at a pivotal stage. The FIU approved 49 crypto exchanges in fiscal year 2024–2025, reflecting rising adoption.
Industry Concerns: Fairness vs. Friction
The ITD’s report highlights systemic friction in the current tax framework. Losses from crypto trades are not recognized, creating a system where reporting becomes cumbersome without offering fair treatment for investors.
Ashish Singhal, co-founder of CoinSwitch, summarized the challenge: the existing rules create “friction rather than fairness”, underscoring the difficulties users face when reconciling taxable gains and losses.
Conclusion
As India’s crypto adoption continues to grow, the challenge of enforcing taxation across decentralized and cross-border platforms is becoming increasingly urgent. While regulatory approvals signal cautious support for the industry, the ITD’s warnings suggest that tracking crypto income will remain complex under current rules.
For investors and exchanges operating in India, vigilance and robust compliance measures are likely to remain essential in 2026 and beyond.
References / Sources
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