New Delhi, 19 October 2026
India runs a crypto market under two sets of rules. An exchange based in India registers with the Financial Intelligence Unit, verifies every user, keeps records under the money laundering law, deducts 1 percent Tax deducted at source (TDS) on every transfer and reports it. A platform based abroad reaches the same Indian user, on the same phone or device and through the same bank account, and does none of this. Both compete for the same customer, but only one of them pays to be in the market.
Before the tax framework came in during 2022, Indian exchanges handled roughly 60% of the crypto trading done by Indian users. In 2025-26 they handled 5.4%. The second edition of the TIOL Knowledge Foundation’s report on the taxation of virtual digital assets, published in September 2026, puts domestic volume at about Rs 51,446 crore for the year against roughly Rs 9,00,100 crore routed offshore. Indians did not trade less after 2022. They traded somewhere else.
Users moved offshore because it costs less to trade there. The 1 percent is charged on the value of each transfer, not on profit, so it is paid whether a trade makes money or loses it, and a trader who moves the same capital in and out each month pays it on every leg. A domestic exchange cannot absorb it, because it is not a fee it earns but a tax it must withhold. An offshore platform has nothing to absorb; it does not deduct at all. The two offer much the same thing, and one of them costs more to trade on.
Offshore platforms have designed their service around this gap. They cannot take rupee deposits directly , so they route Indian users through peer-to-peer counters where buyer and seller settle the rupee leg between their own bank accounts. The platform matches the two sides, holds the crypto in escrow and takes a cut, then argues that because the money never passed through it, it is not the payer and owes no deduction. That design keeps a rupee entry route open and keeps the platform outside the one provision that would have made it visible to the tax department.
The revenue picture follows. TDS on virtual digital assets, as disclosed in Parliament, came to Rs 221.27 crore in 2022-23, Rs 362.70 crore in 2023-24 and Rs 511.83 crore in 2024-25, under Rs 1,100 crore in three years and nearly all of it from domestic exchanges. Against that, the TIOL report estimates about Rs 19,049 crore of deduction due on offshore trading that was never collected. Blocking access has not recovered it: when the Financial Intelligence Unit issued notices to 25 offshore platforms in October 2025, traffic to those sites fell, but the displaced users moved to peer-to-peer channels on other offshore platforms, not back to Indian exchanges. More than 45 offshore exchanges still serve Indian customers without registration.
Closing the gap needs no new ideas. Section 393 of the Income-tax Act, 2025, carrying forward the earlier Section 194S, puts the duty to deduct on the person responsible for paying the consideration, which is the phrase offshore platforms read their way out of. Parliament has answered this argument before: foreign e-commerce platforms once stood outside the framework because buyers paid sellers directly, and Section 194-O, introduced in 2020, deemed a payment facilitated by an operator to have been made by the operator itself. The same provision for platforms facilitating crypto transfers for Indian residents, with transaction-level reporting wherever they are incorporated, would place one obligation on every platform serving the same user.
This is not a case for taxing crypto lightly, but for taxing it evenly. As the rules stand, the full weight falls on the platforms that registered, verified their users and reported their trades, and none of it on those that did neither. That is a charge on compliance, and the market has responded accordingly. Until the obligation follows the Indian user rather than the platform’s address, India will keep collecting from the small part of the market it can see and losing the rest to the part it cannot.