India's Crypto Tax Regime Drives Trading Activity Offshore

India's crypto landscape has become increasingly unforgiving for investors, as the government continues to enforce a 30% tax on gains from virtual digital assets (VDAs). Despite years of lobbying by the industry, the Union Budget in 2026-27 made no changes to this framework. The tax regime is laid out in Section 115BBH of the Income Tax Act, which dictates that any gains from VDAs are taxed at a flat 30%. Additionally, every transaction triggers a 1% tax deducted at source (TDS), regardless of whether the trade was profitable or not.

The real kicker is the prohibition on loss offsetting. In most developed tax regimes, losses on one trade can be used to reduce taxes owed on a winning trade. However, in India, this is not the case. Losses on VDAs cannot be offset against gains and cannot be carried forward to future tax years.

The result has been a significant exodus of trading activity from domestic platforms to offshore exchanges. Reports indicate that over 90% of India's crypto trading activity has migrated to global platforms, resulting in an estimated annual capital outflow of approximately $6.1 billion. This is roughly three times the amount of money that stays within India's borders, which totals around $2.1 billion.

The Indian exchanges have felt the squeeze directly, with trading volumes on major platforms like WazirX and CoinDCX cratering almost immediately after the TDS provision kicked in in 2022. Traders didn't stop trading; they simply moved to Binance, OKX, and other global platforms that operate beyond India's regulatory reach.