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Indian crypto investors who thought they could dodge taxes by trading on foreign platforms like Binance are in for a rude awakening.
The Income Tax department is now tightening the screws, ensuring that the 1% tax deducted at source (TDS) on crypto transactions-introduced in July 2022-is being properly paid.
When the government slapped a 1% TDS on every crypto sale and a steep 30% tax on profits (way higher than stock market taxes), many traders looked for ways to escape the burden. Since 2020-21, a growing number of investors shifted their crypto holdings from Indian exchanges to foreign platforms, especially Binance. The logic? Offshore exchanges wouldn’t automatically deduct TDS, making it seem like an easy loophole.
Even Non-Resident Indians (NRIs), who initially invested through Indian exchanges, got caught in this shift. Some traders withdrew funds from local platforms under the guise of “personal use” or “investment diversification,” only to move them to overseas exchanges or private wallets.
To avoid paying TDS, traders have been using several tactics:
Since platforms like Binance don’t deduct TDS automatically, many traders assumed they could fly under the radar.
Binance and other exchanges allow P2P trading, where users directly buy and sell crypto using bank transfers. But Indian tax rules say the buyer must deduct 1% TDS-something many either ignore or don’t know about.
Swapping one token for another? That’s taxable, too. Both parties are supposed to deduct TDS, but on foreign exchanges, this rarely happens.
Once crypto moves from an exchange to a private wallet, tracking becomes tough. Some traders exploit this by using privacy-focused coins like Monero or Zcash, which are nearly impossible to trace. These coins aren’t even listed on most Indian exchanges, making them a go-to for those looking to stay off the taxman’s radar.
The authorities aren’t sitting idle. Here’s what they’re doing:
Trying to dodge crypto taxes isn’t just risky-it could lead to serious trouble:
While crypto offers some anonymity, regulators are catching up. The government is walking a tightrope-trying to enforce tax compliance without stifling innovation in a fast-moving market.
For traders who thought shifting assets offshore would keep them safe, the message is clear: The taxman is watching, and the noose is tightening.
Published by
Vivek Singh Baghel
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Category Income Tax Report
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India's Tax Crackdown on Crypto Traders Using Offshore Exchanges – CAclubindia
