New Delhi, 6 May 2025
For years, offshore crypto platforms have operated in India without adhering to local tax laws, allowing traders to bypass the 1% TDS and other tax obligations. Despite clear regulations, these platforms have actively promoted “zero tax” trading, misleading users into believing they could evade tax liability. But the reality is changing fast.
If you have been trading on offshore exchanges, thinking you could escape taxation, it’s time to face the truth. The Indian government has already taken aggressive steps to plug these loopholes, ensuring that tax evasion is no longer an option. In the coming months, the implementation of the Crypto-Asset Reporting Framework (CARF) will make undisclosed offshore crypto transactions fully visible to tax authorities. And when that happens, non-compliant traders won’t just owe back taxes—they will also face heavy penalties for unreported income.
Global enforcement is tightening
CARF, similar to the Common Reporting Standard (CRS) for financial assets, requires participating jurisdictions to share transaction data with tax authorities and with 63 nations committed to implementing CARF, the global tax net is tightening. This means:
• Every trade made on foreign exchanges will come under scrutiny.
• Non-disclosure can lead to penalties well beyond the tax due.
• Tax authorities will actively identify and pursue tax evaders.
Offshore exchanges have ignored Indian laws—why would they comply now?
Many other concerning questions arise considering the past record of offshore crypto platforms:
• If these platforms failed to deduct TDS despite clear Indian tax laws, what assurance is there that they will now comply with the Crypto-Asset Reporting Framework (CARF)?
• If they never protected users from tax liabilities before, is there any reason to believe they will do so now?
• Is it worth risking one’s financial future on an exchange that could leave users exposed to legal scrutiny?
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On the other hand, unlike offshore platforms, Indian exchanges have adhered to tax regulations, ensuring compliance by deducting TDS and following reporting norms. The repeated non-compliance of foreign exchanges with Indian tax laws has not only deprived the government of rightful revenue but also distorted fair competition in the crypto market. With enforcement mechanisms like CARF being implemented, traders using such platforms must acknowledge the rising legal and financial risks involved.
India must enforce compliance—no exceptions
The Indian government has introduced amendments to the Income Tax Act requiring designated reporting entities to disclose virtual digital asset (VDA) transactions. The implications are significant:
• If unreported crypto gains are discovered, tax authorities may impose a 60% tax along with a 50% penalty on the tax amount.
• Individuals who used offshore platforms to evade taxes could face inquiries and penalties.
• Non-compliant exchanges may be barred from operating in India unless they register and meet Indian tax obligations.
In both the existing law and the proposed Income Tax Bill under discussion, provisions now raise the possibility of retrospective taxation. This means users who previously traded on offshore platforms without fulfilling TDS obligations could face backdated tax liabilities and penalties, even if they were unaware of their non-compliance.
The message is clear: the era of unregulated offshore crypto trading is ending. Those who assumed they could remain under the radar must now reconsider their strategies. With loopholes closing and international frameworks like CARF enabling data sharing, tax non-compliance is increasingly likely to result in enforcement action.
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