TIOL report finds ₹4.88 lakh crore in crypto trades moving offshore, Vanishing India’s Crypto Revenue

As countries worldwide prepare to integrate cryptocurrency into their financial systems, India’s crypto tax regime is still facing a basic question: how much trading is happening outside the tax department’s view?

A new study by TIOL Knowledge Foundation, titled “Taxation of Digital Assets in India – A Data-Driven Assessment of India’s VDA Tax Regime and its Market Impact,” estimates that Indian users routed roughly ₹4.88 lakh crore of virtual digital asset trades through offshore platforms in FY24–25 alone.

The picture it draws is consistent with an earlier brief from Delhi-based think tank Esya Centre, which had pegged offshore trades by Indian users at about ₹2.63 lakh crore in previous year. Together, these estimates suggest that while Indians continue to trade actively in virtual digital assets, a significant share of that activity is slipping beyond the effective reach of India’s tax net.

TIOL traces this outcome back to the Finance Act 2022, which put crypto on a special footing. The taxation framework included a flat 30 per cent tax on gains, barred loss set-offs and added a one per cent tax deducted at source (TDS) on every trades upwards of a very small ceiling. The package was sold as a way to discourage speculative churn and “capture VDA transaction details”. In reality, it has yielded modest formal collections of about ₹706 crore in capital-gains tax over FY22–23 and FY23–24 and about ₹338 crore of TDS, even as Indian users continue to trade in size.

To see what is missing, TIOL reconstructs Indian activity across global exchanges using web-traffic data, order-book snapshots and a scrape of Binance’s rupee peer-to-peer (P2P) desk. For FY24–25, compliant Indian exchanges are estimated to have handled around ₹45,000 crore of VDA trades, or just 8–10 per cent of India-linked volume. The remaining 90-plus per cent, that is about ₹4.88 lakh crore, flowed through foreign platforms, including some that have been blocked in India but remain reachable through VPNs.

Those volumes translate into a sizable tax gap. Since the one per cent TDS took effect in July 2022, TIOL estimates that more than ₹11,000 crore of TDS that should have been collected on offshore trades by Indian users has gone missing. For one recent 12-month window, the “missing” TDS is put at about ₹4,877 crore, with cumulative losses on potential capital-gains tax at roughly ₹36,000 crore. If behaviour does not change, the report projects that Indians could cumulatively trade close to ₹39.9 lakh crore on offshore platforms over the next five financial years, implying nearly ₹39,971 crore of forgone TDS by FY2030.

Earlier Esya Centre’s “Taxes and Takedowns” report found that after the VDA package was announced, volumes on domestic exchanges slumped while around 92 per cent of Indian trading migrated offshore, leading to an estimated ₹3,493 crore in uncollected TDS. Its December 2024 update scaled offshore trading to ₹2.63 lakh crore and pushed cumulative uncollected TDS beyond ₹6,000 crore. A study by the Centre for Tax Laws at NALSAR University of Law, using data from six Indian exchanges, reported a 97 per cent fall in onshore volumes and a potential revenue loss of about ₹2,489 crore.

A large part of this migration has shifted to P2P channels, which allow users to post buy-and-sell ads, settle payments via UPI or bank transfers and rely on exchanges solely for crypto escrow. TIOL notes that traffic from Indian IP addresses to exchanges that have been officially blocked has also rebounded, underscoring the limits of current enforcement measures.

In light of these findings, TIOL recommends amending Section 194S to make both domestic and offshore exchanges serving Indian users explicitly responsible for deducting TDS, even when they do not process the rupee leg of the transaction. The report also calls for aligning the tax treatment of VDAs with other asset classes and strengthening annual reporting requirements to improve oversight and revenue collection.