Current Regulatory Framework
Published 7/9/2026, 9:38:23 PM
India's regulatory approach—characterized by aggressive taxation and compliance mandates rather than an outright prohibition—has already driven the vast majority of domestic trading volume to offshore exchanges. Research indicates that approximately 90% of Indian crypto trading volume now occurs on foreign platforms as users seek to avoid the 1% Tax Deducted at Source (TDS) and the 30% flat tax on gains [Source: https://www.facebook.com/cnbctv18india/posts/crypto-investors-take-notefrom-april-1-india-will-tighten-tax-reporting-for-digi/1430962242397870/].
Current Regulatory Framework
India classifies cryptocurrencies as Virtual Digital Assets (VDAs). While not banned, the environment is highly restrictive:
- Taxation: A 30% flat tax on all crypto income with no provision to offset losses, plus a 1% TDS on every transaction [Source: https://www.esyacentre.org].
- AML Compliance: The Financial Intelligence Unit (FIU-IND) requires all VDA providers to register under the Prevention of Money Laundering Act (PMLA).
- Enforcement: In October 2025, the FIU-IND ordered the blocking of 25 offshore exchanges for failing to register, following earlier actions against majors like Binance and KuCoin [Source: https://charltonsquantum.com/india-crypto-crackdown-2025-fiu-blocks-exchanges/].
Evidence of Offshore Migration
The migration of liquidity is well-documented, with domestic exchanges seeing an 81% decline in volume shortly after the implementation of the 1% TDS.
| Metric | Impact / Value | Source/Period |
|---|---|---|
| Offshore Trading Volume | ₹5 lakh crore (~$600B) | Oct 2024 – Oct 2025 [Source: https://finance.yahoo.com/news/india-crypto-executives-push-roll-121823556.html] |
| Domestic Volume Loss | 81% decline | Post-July 2022 [Source: https://www.esyacentre.org] |
| P2P Dominance | ₹3.5 lakh crore (~$42B) | July 2022 – Oct 2023 [Source: https://www.techcrunch.com] |
| Lost Tax Revenue | ₹17,700 crore (~$2.1B) | Projected 5-year loss [Source: https://www.esyacentre.org] |
Key Drivers of Migration
- TDS Avoidance: The 1% TDS on domestic platforms significantly impacts high-frequency traders. Offshore exchanges that do not enforce this deduction remain the primary venue for active participants [Source: https://www.esyacentre.org].
- P2P Liquidity: Peer-to-peer (P2P) trading on offshore platforms has surged. At its peak, Binance's P2P volume alone was 8% higher than the combined trading volume of all Indian domestic exchanges [Source: https://www.techcrunch.com].
- Regulatory Arbitrage: Despite FIU efforts to block non-compliant apps, users continue to migrate to less-regulated venues to bypass the "shadow ban" created by the tax code.
Future Outlook: Closing the Offshore Gap
The trend of offshore migration may face headwinds starting in 2027. India is a signatory to the Crypto-Asset Reporting Framework (CARF), a global agreement among 46+ jurisdictions to automatically exchange tax information on crypto transactions [Verified: OECD Global Forum CARF Commitment List, June 2026]. This framework aims to eliminate the "blind spots" currently provided by offshore exchanges by 2027 [Source: https://finance.yahoo.com/news/india-crypto-executives-push-roll-121823556.html].
Conclusion: India's restrictive tax regime has already successfully driven the majority of volume offshore; however, the upcoming implementation of CARF in 2027 represents a significant attempt by the government to regain oversight of these migrated funds.