India’s tax authorities have renewed their warning that cryptocurrency activity is stretching enforcement systems close to their practical limits. Officials said the structure of digital asset transactions reduces visibility, making it harder to track income and match activity to taxpayers, especially when offshore exchanges, private wallets, and DeFi platforms are involved.
Parliamentary review focused on gaps in tax monitoring
According to The Times of India, the issue was discussed during a meeting of the parliamentary standing committee on finance. The Income Tax Department took part alongside the Central Board of Direct Taxes, the Financial Intelligence Unit, and the Department of Revenue. Officials reviewed a report on virtual digital assets and future regulatory direction, with attention on the gap between crypto activity and the tools currently used for tax monitoring. The concern is simple: transactions can happen faster and across more channels than the reporting system can easily capture.
Authorities said crypto enables near-instant cross-border transfers of value and can preserve a degree of anonymity. That weakens the ability to connect transactions to identifiable taxpayers. Once activity moves across several jurisdictions, tracing assets and establishing ownership becomes much harder. Limited information sharing between countries slows reconstruction of transaction histories and affects accurate income assessment.
Offshore venues, private wallets, and DeFi seen as higher-risk channels
The department identified offshore exchanges, private wallets, and DeFi platforms as higher-risk channels because they often operate without regulated intermediaries and offer less transparency to tax authorities. Private wallets are a particular challenge, as they can bypass centralized reporting systems and make it difficult to identify holders of offshore virtual digital assets.
This pressure sits alongside India’s existing tax framework. The country imposes a flat 30% tax on crypto gains and a 1% tax deducted at source on every transfer. The rules also do not allow losses from crypto trading to offset gains. Market participants have argued that this creates compliance friction and makes the system less balanced for taxpayers.
Strict taxation remains while formalization continues
India still allows crypto trading under tight oversight and a cautious policy approach, rather than banning market access outright. The Financial Intelligence Unit approved 49 crypto exchanges in the 2024–2025 fiscal year, a sign that formalization is progressing even as official concern remains high.
Local industry figures say adoption is still spreading across both retail and professional users, but compliance costs remain a persistent burden. CoinSwitch co-founder Ashish Singhal said the tax structure creates friction instead of fairness because it does not recognize losses. The latest warning shows that authorities remain focused on revenue leakage, cross-border traceability, and the need for stronger international cooperation.