According to a Financial Times report dated May 27, 2025, India’s cryptocurrency industry is intensifying efforts to lobby the government for a reduction in the 30% capital gains tax and the 1% Tax Deducted at Source (TDS) on transactions, both introduced in 2022. Industry leaders argue these taxes, implemented to curb illegal activities, have driven over 90% of Indian crypto trading to offshore platforms, as noted in a report by the Esya Centre.
The push for tax reform is fueled by increased government engagement, with meetings between crypto executives and policymakers rising from biannual to monthly or weekly, especially following global pro-crypto developments like Donald Trump’s supportive stance. Industry figures, such as Ashish Singhal of CoinSwitch, propose reducing the TDS to 0.1% to encourage legitimate trading while maintaining transparency. Despite these efforts, no formal tax relief was included in the February 2025 budget, though the government is redrafting a key crypto policy discussion paper.
The implications of India’s 30% capital gains tax and 1% transaction tax on cryptocurrencies, combined with the industry’s lobbying efforts for reform, highlight a significant divide between regulatory goals and market dynamics. The high taxes have driven over 90% of Indian crypto trading to offshore platforms, as per the Esya Centre, reducing domestic exchange activity and tax revenue potential. This shift undermines India’s ability to regulate and monitor crypto transactions, increasing risks of unregulated trading and potential illicit activities—the very issues the taxes aimed to address.
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Domestic crypto exchanges face reduced liquidity and competitiveness, as users prefer offshore platforms with lower tax burdens, impacting the growth of India’s blockchain and Web3 sectors. The stringent tax regime stifles innovation in India’s crypto and blockchain industries, which are seen as key to future tech economies. Industry leaders argue that lower taxes could foster a vibrant domestic crypto ecosystem, attracting investment and talent.
The 1% TDS, applied per transaction, discourages high-frequency trading and increases costs for retail investors, potentially limiting broader adoption of cryptocurrencies in India. Global shifts, such as pro-crypto policies in the U.S. under Donald Trump, put pressure on India to align its regulations to remain competitive. If India maintains high taxes, it risks losing its position as a hub for crypto innovation to jurisdictions with more favorable policies.
The lobbying push reflects a broader global trend where crypto industries seek regulatory clarity and tax relief to integrate digital assets into mainstream finance. While the taxes generate revenue, the offshore migration limits their effectiveness. A reduction to, say, 0.1% TDS, as proposed by industry leaders like Ashish Singhal, could increase transaction volumes on domestic platforms, potentially offsetting revenue losses through broader compliance and transparency.
The 30% capital gains tax and 1% TDS were introduced in 2022 to curb money laundering and speculative trading, reflecting a cautious approach to cryptocurrencies amid concerns about financial stability and illegal activities. The government prioritizes tax collection and regulatory oversight, viewing crypto as a high-risk asset class requiring strict controls to protect retail investors and the financial system. Despite increased engagement with the industry, the government’s slow pace in revising policies (e.g., the ongoing redraft of a crypto policy paper) suggests lingering skepticism about cryptocurrencies’ legitimacy and safety.
Crypto exchanges, startups, and industry bodies argue that the high taxes stifle innovation and push legitimate businesses offshore, undermining India’s potential as a global blockchain leader. The 1% TDS is seen as particularly punitive for retail investors and traders, as it applies to every transaction, not just profits, making crypto trading cost-prohibitive compared to other asset classes.
The industry seeks alignment with global trends, citing examples like the U.S., where pro-crypto policies are gaining traction. They advocate for a balanced framework that encourages compliance without stifling growth. The divide centers on balancing regulation with innovation. The government aims to mitigate risks and ensure fiscal control, while the industry pushes for a lighter tax regime to foster growth and retain market activity within India.
The lack of tax relief in the February 2025 budget, despite increased government-industry dialogue, underscores this tension. The industry’s call for a 0.1% TDS and lower capital gains tax reflects a desire for compromise, but the government’s cautious approach suggests a reluctance to fully embrace crypto without robust safeguards. The industry’s intensified lobbying, supported by global pro-crypto momentum, may pressure the government to reconsider its stance. A revised crypto policy, expected from the ongoing redraft, could bridge the divide by offering tax concessions while maintaining regulatory oversight.
If the government does not adjust its policies, India risks further offshore migration, reduced innovation, and missed economic opportunities in the rapidly growing crypto and blockchain sectors. A tiered tax structure or incentives for compliant platforms could align interests, encouraging domestic trading while addressing regulatory concerns. This divide reflects a broader global challenge of integrating cryptocurrencies into regulated financial systems, with India at a critical juncture to shape its role in the digital asset economy.