India’s crypto investors say tax laws are unfair

India’s crypto scene is a beautiful mess. On one hand, it’s home to one of the world’s largest communities of crypto users, a young, tech-savvy crowd keen to explore the endless possibilities of decentralized finance.

Yet on the other hand, the same country enforces some of the toughest tax rules on crypto anywhere in the world. To many, it feels like innovation is being treated with suspicion rather than support. That frustration shows in the numbers. In a recent survey of 9,000 Indian participants, approximately 84% said they believe India’s crypto tax policies are unfair.

A punishing framework?

They aren’t quiet about it online either. Just browse Reddit, and you’ll see people calling the rules “excessive” and arguing that “there are no other rules or regulations on it, just tax.”

So who’s right? Should the government ease up, or is it right to keep a tight grip on the volatile market? The government’s rationale has been to curb speculation and protect investors. However, the absence of a coherent crypto regulatory framework only adds to the confusion. Compared to crypto tax rules in other jurisdictions, it makes you wonder whether India has gone too far in tightening the reins on the emerging industry and potentially stifling innovation.

Since 2022, India has levied a flat 30% tax on all crypto gains, with no allowance to offset losses, even against capital gains from other cryptocurrencies. On top of that, there is a 1% tax deducted at source (TDS) on every transaction, and many argue that this has led to a system that effectively penalizes participation in crypto.

When you compare these rules to other jurisdictions, it is obvious why some are outraged. 

The United States and the United Kingdom, for example, tax crypto under capital gains regimes that provide clearer reporting standards and allow loss offsets. In the UK, the first £3,000 of gains are exempt, and profits above that are taxed progressively, at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers, which are both well below India’s flat 30% rate.

Even in countries that have tightened regulations, such as Japan or South Korea, there’s recognition that high taxation stifles the industry.

Clarity…or the lack thereof

It has been a huge disappointment for the many small traders in India who entered the market with modest investments and hopes of building a better financial future through crypto. 

Many of the once-vibrant domestic crypto exchanges have also seen volumes plunge in recent years, as users migrate to offshore platforms or simply exit the market altogether. Local critics have argued that crypto is being taxed not as an investment asset, but as a form of gambling. 

However, unlike gambling, the crypto industry has attracted billions in venture capital, pushed forward software innovation, and created more jobs in the nation. The Income Tax Department treats crypto as a capital asset when it comes to taxation, but there’s still no clarity on how holdings should be valued, or whether decentralized tokens are distinct from exchange-listed coins. Income derived from staking, rewards, or mining is typically taxed at an individual’s applicable income tax rate.

Is there room for a more balanced framework?

For ordinary investors, the rules are opaque, the compliance burdens are high, and the penalties are severe, including evasion of TDS. The penalties range from steep fines to imprisonment, depending on the severity. It’s little wonder that crypto sentiment has soured within the nation.

India’s harsh approach to crypto tax risks alienating the young digital entrepreneurs and developers. Instead of nurturing innovation, the policy appears to be designed to deter it. None of this is to say that crypto should be tax-free or unregulated. India does have a legitimate interest in curbing illicit flows and speculation. But fairness in taxation demands proportion and more clarity.

A more balanced framework could include allowing loss offsets within the digital asset class, differentiating long-term holdings from speculative trades, and providing clearer guidance on reporting and valuation. Such changes wouldn’t just make compliance easier, they’d signal that India sees crypto not as a threat, but as a component of its digital future.

The way forward

Global sentiment toward crypto has turned significantly more positive over the past year, with U.S. President Donald Trump helping to push forward crypto-friendly legislation in the Senate and billions flowing into crypto-related ETFs.

Given India’s immense developer talent and appetite for innovation, it could easily be a global leader in this space. But to get there, the government must abandon the suspicion that treats every crypto trade as a roll of the dice. 

The question isn’t whether to tax, it’s how to tax fairly, without smothering an emerging industry before it matures. For now, India’s crypto investors have reason to feel aggrieved, and unless the taxman rethinks his approach, the country risks taxing away not just profits, but potential.

With recent data indicating that around 7% of India’s population, approximately 94 million people, use cryptocurrency, it’s clear that this is a challenge that will stick around unless meaningful changes are made.