Indian crypto investors claim that the tax laws are unfair, but are they right?

India’s crypto scene is in spectacular disarray. On the other hand, it is home to the world’s largest community of crypto users, a young, tech-savvy bunch eager to explore the endless possibilities of decentralized finance.

But on the other hand, the same country has some of the strictest tax laws for cryptocurrencies anywhere in the world. For many, it feels like innovation is treated with suspicion rather than support. The frustration is reflected in the numbers. In a recent survey of 9,000 Indian participants, around 84% said they believed India’s crypto tax policy was unfair.

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Punitive framework?

They are not silent online either. If you browse Reddit, you’ll see people calling the rules “excessive” and claiming that “there are no other rules or regulations, just taxes.”

So who is right? Should the government ease the situation, or is it right to keep a tight grip on the volatile market? The government’s rationale is to curb speculation and protect investors. However, the lack of a consistent cryptocurrency regulatory framework only adds to the confusion. When compared to crypto tax rules in other jurisdictions, one wonders whether India could tighten the reins on an emerging industry and stifle innovation.

From 2022 onwards, India imposes a flat 30% tax on all crypto profits, and there is no deduction to offset losses on capital gains from other cryptocurrencies as well. On top of that, all transactions are subject to a 1% tax at source (TDS), which many argue creates a system that effectively punishes participation in cryptocurrencies.

Comparing these rules to other jurisdictions, it’s clear why some are furious.

For example, the US and UK tax cryptocurrencies under capital gains regimes that provide clearer reporting standards and allow losses to be offset. In the UK, the first £3,000 of profits are tax-free, and profits above that are taxed at a progressive rate of 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, both of which are significantly lower than India’s flat rate of 30%.

Even in countries such as Japan and South Korea that have tightened regulations, there is a perception that high taxes are putting pressure on the industry.

Clarity…or lack thereof

This came as a huge disappointment to many small traders in India who entered the market with modest investments and hopes of building a better financial future through cryptocurrencies.

Many once-bustling domestic cryptocurrency exchanges have seen trading volumes plummet in recent years as users migrate to offshore platforms or exit the market altogether. Local critics argue that cryptocurrencies are being taxed as a form of gambling rather than as an investment asset.

But unlike gambling, the cryptocurrency industry has attracted billions of dollars in venture capital, driven software innovation, and created more jobs in the country. Although the Income Tax Department treats cryptocurrencies as capital assets for tax purposes, it is not yet clear how the holdings should be valued and whether decentralized tokens will be distinguished from exchange-listed coins. Income derived from staking, rewards, or mining is generally taxed at the income tax rate applicable to the individual.

Is there room for a more balanced framework?

For ordinary investors, the rules are opaque, the burden of compliance is heavy, and the penalties for evading TDS are severe. Penalties vary depending on their severity, ranging from large fines to imprisonment. It is no wonder that sentiment towards cryptocurrencies has worsened in the country.

India’s tough approach to crypto taxes risks alienating young digital entrepreneurs and developers. This policy appears designed to stifle innovation rather than foster it. This is not to say that cryptocurrencies should be tax-free or unregulated. India has a legitimate interest in curbing illicit financial flows and speculation. However, fairness in taxation requires proportionality and greater clarity.

A more balanced framework could include allowing loss offsets within digital asset classes, distinguishing between long-term holdings and speculative trading, and providing clearer guidance on reporting and valuation. Such changes would not only ease compliance but also signal that India views cryptocurrencies not as a threat but as building blocks of its digital future.

Future direction

Global sentiment towards cryptocurrencies has turned significantly positive over the past year, with US President Donald Trump helping to push crypto-friendly legislation in the Senate and billions of dollars flowing into crypto-related ETFs.

Given India’s immense developer talent and appetite for innovation, it could easily become a global leader in this field. But to get there, governments must give up any suspicions that they treat all crypto transactions like the roll of a dice.

The question is not whether to tax or not, but how to do so fairly without stunting the growth of emerging industries before they mature. For now, there is reason for India’s crypto investors to be dissatisfied, and unless the tax department reconsiders its approach, India risks taxing not just profits but potential.

Recent data shows that approximately 7% of India’s population, or approximately 94 million people, use cryptocurrencies, and it is clear that this will continue to be a challenge unless meaningful changes are made.

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