India could lose over $2 billion in tax revenue from cryptocurrency transactions in the next five years as its tax policies push traders to offshore platforms, according to a recent report.
Indian technology think tank Esya Center’s December report shows that the government has already failed to collect over INR 6,000 crore (around $724 million) in tax revenue from virtual digital assets since July 2022 as traders moved to offshore Exchanges migrated to avoid compliance burdens and high tax rates.
After lifting a 2018 shadow ban, India imposed a 30% capital gains tax on cryptocurrency transactions, not allowing users to offset losses against profits, while subjecting domestic crypto transactions to a 1% withholding tax.
Additionally, the government has attempted to regulate the sector by placing VDAs under the Prevention of Money Laundering Act (PMLA) and blocking URLs of non-compliant offshore exchanges to curb tax evasion and improve oversight.
However, the report highlights that these measures have been largely ineffective as traders continue to circumvent restrictions using VPNs and offshore platforms still dominate trading volumes.
Notably, Indian users traded VDAs worth over INR 1.03 Lakh Crore (approximately US$ 12.3 billion) between July 2022 and November 2023 on offshore platforms, including blocked exchanges, with cumulative uncollected TDS during this period estimated to be more than INR 3,493 Crore (approximately US$417 million) during the period.
Between December 2023 and October 2024, trading volumes on offshore platforms continued to increase, reaching INR 2.63 Lakh Crore (approximately US$ 31.1 billion)….
