Nearly 95% of India's cryptocurrency trading volume took place on offshore exchanges during FY 2025–26, according to a September 2026 report by the TIOL Knowledge Foundation (TKF). The findings suggest that India's cryptocurrency taxation framework may be contributing to the migration of trading activity beyond domestic exchanges and tax reporting systems.

The report, Impact of Taxation on Virtual Digital Assets in India, estimates that offshore exchanges facilitated ₹9,00,100 crore in trading activity during FY 2025–26, compared with ₹51,446 crore handled by domestic compliant platforms. This leaves Indian exchanges with just 5.4% of the estimated market.

95% of India's Crypto Trading Happens Offshore

The TKF report identifies a widening gap between cryptocurrency activity conducted on domestic compliant exchanges and offshore platforms serving Indian users. During FY 2025–26, offshore exchanges accounted for approximately ₹9 lakh crore in estimated trading volume, while domestic exchanges handled ₹51,446 crore.

The report shows that domestic exchanges' market share declined from 14% in the October 2023–October 2024 period to 8.5% the following year, before falling further to 5.4% in FY 2025–26. Domestic trading volumes remained relatively stable, ranging between ₹45,000 crore and ₹51,446 crore across these periods. Offshore activity, however, expanded considerably.

TKF attributes much of this divergence to India's taxation structure, particularly the 1% TDS introduced in July 2022. Unlike the 30% tax on qualifying VDA income, TDS is collected on the applicable transaction value.

Frequent traders therefore face repeated withholding deductions, even when their transactions generate little or no profit. Although TDS can be credited against a taxpayer's final liability, repeated deductions can temporarily reduce available trading capital.

India's taxation framework was originally introduced through the 2022 Union Budget, as explained in EtherWorld's Cryptocurrency Taxation in India. The changing competitive position of local platforms has also been explored in Top 10 Indian Crypto Exchanges Every Investor Should Know and After CoinDCX: Where Should Indian Crypto Users Actually Trade?.

₹57,147 Crore Estimated Tax Loss Raises Questions

One of the report's most significant findings concerns the estimated revenue India may be missing because of offshore trading activity. TKF estimates that approximately ₹9,001 crore in TDS went uncollected during FY 2025–26 alone.

Since the 1% TDS framework came into force in July 2022, the report estimates cumulative uncollected TDS at ₹19,049 crore through June 2026. Its broader estimate of ₹57,147 crore in potential tax revenue loss is calculated by converting the estimated TDS shortfall into underlying trading turnover, assuming 10% profitability, and applying the 30% VDA tax rate.

Importantly, these are modelled estimates, not confirmed unpaid tax assessments. Actual tax liability would depend on taxable gains, transaction characteristics, taxpayer circumstances and the applicable legal provisions.

According to Ministry of Finance data cited in the report, VDA TDS collections reached ₹221.27 crore in FY 2022–23, ₹362.70 crore in FY 2023–24 and ₹511.83 crore in FY 2024–25. These figures were previously covered in EtherWorld's India's Crypto TDS Crosses ₹511 Crore in FY25.

P2P Trading Expands Despite Regulatory Crackdowns

The report identifies peer-to-peer trading as a major channel behind India's offshore cryptocurrency activity. P2P platforms allow buyers and sellers to transact directly, with cryptocurrency transfers facilitated through an exchange while payments may occur through domestic banking channels.

According to TKF, Indian rupee P2P trading volume on a leading offshore platform increased approximately 29% between April 2025 and June 2026. During the same period, other fiat currency corridors on the platform collectively recorded a 46% decline.

However, TKF's analysis suggests that users displaced from restricted platforms increasingly moved to alternative offshore services rather than returning to domestic exchanges. The report argues that website restrictions alone are insufficient when users can access other trading platforms and P2P markets.

This does not mean offshore transactions are automatically exempt from Indian taxes. Indian residents may still have tax and reporting obligations regardless of where their transactions occur.

EtherWorld explored these issues in Binance's India Withdrawal Debate Reignites Crypto Policy Questions and Will India Regulate Crypto? What to Expect From Monsoon Session. India's cryptocurrency market also faces liquidity challenges, including differences between domestic stablecoin prices and international exchange rates.

Can Lower Crypto Taxes Bring Trading Back to India?

TKF recommends a substantial recalibration of India's cryptocurrency taxation framework. Its principal proposal is reducing the 1% TDS rate to 0.01%, which the report argues would preserve transaction tracking while reducing the incentive to avoid compliant exchanges.

The foundation also recommends allowing cryptocurrency trading losses to be offset and carried forward, reconsidering the 30% tax rate, and clarifying the obligations of offshore platforms facilitating transactions involving Indian residents. According to its forecasting model, offshore cryptocurrency trading volume could reach ₹15.27 lakh crore by FY 2030–31 if existing trends continue.

India is also expanding its cryptocurrency reporting infrastructure through the OECD's Crypto-Asset Reporting Framework (CARF). As EtherWorld reported in India Issues New Crypto Tax Rules From 2026, the new framework requires qualifying crypto service providers to collect and report customer and transaction information, improving the ability of tax authorities to identify relevant activity.

Yet reporting requirements alone may not resolve the economic incentives encouraging offshore trading. The debate has also reached Parliament, with lawmakers calling for clearer digital asset regulation and improved treatment of domestic crypto businesses. EtherWorld covered one such intervention in Indian MP Raghav Chadha Pushes Crypto & Blockchain Reforms.

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Related Articles

• India's Crypto Rulebook Is Under Review
• India's Crypto TDS Crosses ₹511 Crore in FY25
• India Studies Global Crypto Regulation Models Amid Growing Capital Outflow
• India Issues New Crypto Tax Rules From 2026
• Indian MP Raghav Chadha Pushes Crypto & Blockchain Reforms

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