India could lose more than $2 billion in tax revenue from cryptocurrency transactions over the next five years due to its tax policies that push traders to offshore platforms, according to a recent report.

December a report Indian technology think tank Esya Center reveals that the government has already missed out on collecting more than INR 6,000 (about $724 million) crore in tax revenue from virtual digital assets since July 2022 as traders migrated to offshore exchanges to avoid compliance burdens and high tax rates.

after Coup Following the 2018 shadow ban, India imposed a 30% capital gains tax on cryptocurrency transactions, which does not allow users to offset losses against gains, while also subjecting domestic cryptocurrency trades to a 1% tax deducted at source.

In addition, the government has attempted to regulate the sector by subjecting VDAs to the Prevention of Money Laundering Act (PMLA). Block URLs Non-compliant offshore exchanges to reduce tax evasion and improve oversight.

However, the report highlights that these measures have been largely ineffective, as traders continue to bypass restrictions using VPNs, and offshore platforms continue to dominate trading volumes.

In particular, between July 2022 and November 2023, Indian users traded over INR 1.03 lakh crore (~$12.3 billion) worth of VDAs on offshore platforms, including blocked exchanges, with total unconsolidated TDS estimated to exceed 3,493 crore Indian rupees (about $417 million) during this year. a period.

Between December 2023 and October 2024, trading volumes on offshore platforms rose further, reaching INR 2.63 lakh crore (about $31.1 billion). This corresponds to an estimated INR 2,634 crore (about $311 million) of TDS outstanding on third-party platforms, taking the total uncollected TDS since July 2022 to more than INR 6,000 crore, the report said.

On the other hand, while local stock exchanges showed some improvement in early 2024, the general trend indicated that at the local level continued To move to overseas platforms, web traffic data indicates a 34% decline in user activity on major local platforms since the beginning of the year.

Currently, KUcoin is the only FX registered FIU that started deducting TDS in March 2024 through a local entity. However, its contribution to the total foreign trade volume by Indian users is still less than 5%.

If the current trend continues, the report warned that unaccumulated TDS from offshore cryptocurrency trading could exceed Rs 17,700 crore (about $2.1 billion) over the next five years.

India should review its tax policy

“The current regulatory framework disproportionately affects users and compliant entities while failing to address the root causes of non-compliance,” the report added. registration With FIU, offshore exchanges are not obligated to establish local subsidiaries or ensure tax compliance.

To address these challenges, the report recommended reviewing Section 194S of the Income Tax Act to make offshore platforms liable for TDS deductions, even if they are not physically based in India, while reducing the 1% TDS rate to 0.01%.

Their industry stakeholders repeatedly They urged a reduction in the dissolved solids rate and the ability to replace losses, arguing that these changes could stimulate domestic trade. However, regulatory bodies remain largely silent on the issue, with much of the country's focus shifting towards it development Central bank digital currency.