Crypto assets saw a massive rally between 2020 and 2021, drawing many Indian traders. The government introduced a 30 per cent tax and 1 per cent TDS in the 2022 Union Budget. While trading fell initially, activity picked up as platforms now offer crypto derivatives that currently avoid these specific taxes.
Crypto assets, led by bitcoin, had been on a dream run in 2020 and 2021, when the massive stimulus provided by countries to fight Covid-19 led to the debasement of almost all currencies. The search for an alternative store for value and hedge against inflation made bitcoin price rally from $5,178 in March 2020 to $64,400 by November 2021, appreciating 11 times in just 20 months. This massive price gain did not escape Indian traders, who plunged headlong into crypto trading, much to the dismay of regulators.
The problem is that no country has framed a viable framework to regulate these assets yet. The crypto trading platforms, which call themselves exchanges, are unregulated entities. Which means investors have no recourse if they lost money there. Then there are other problems with cryptos (excluding stablecoins) such as excessive volatility, absence of inherent value and their misuse for nefarious cross-border payments.
The Centre tackled the problem in two ways. The Union Budget of 2022 introduced punitive tax at the rate of 30 per cent plus surcharge and cess, on gains made through crypto assets. Along with this, 1 per cent TDS was also applied while purchasing cryptos. Two, all service providers dealing with cryptos or virtual digital assets were brought under the anti-money laundering/counter financing of terrorism framework, in March 2023.
While these actions helped control crypto trading activity for a while, it has witnessed a resurgence, in a new avatar in recent years. There is also rising risk of misuse of the cryptos by miscreants.
How effective is crypto tax?
In the months following the implementation of the crypto tax, turnover in India’s popular crypto trading platforms declined sharply, up to 70 per cent in some cases. Many of the smaller platforms were shut down due to inability to comply with the regulatory requirements.
But activity has picked up in recent years with traders now flocking to crypto derivatives. With the crypto tax applicable only on spot transactions in various crypto assets, trading platforms such as Zebpay, WazirX and CoinDCX offer trading in futures and options on cryptos including bitcoin, Etherium, Solana and Tether. The profit or loss booked on these transactions is being treated as business income and no TDS is applied on these transactions, since the Income Tax Act does not mention tax on crypto derivative transactions.
It is reported that futures and option on cryptos now account for more than three-fourths of the trading on domestic exchanges and eyebrows are being raised at the excessive leverage being offered by these platforms to traders, amplifying the risk.
If the objective behind the crypto tax was to dissuade trading activity in these assets, then it has not been effective as the stakeholders have found a way to by-pass the rules.
Money laundering risks
Crypto assets, which operate in a regulatory vacuum and facilitate cross-border payments with great ease, have frequently been misused for money laundering, drug trafficking and terror activities.
Several Indian crypto trading platforms including WazirX and ZebPay have faced investigations by the Enforcement Directorate since 2022, for cases relating to FEMA violations.
In June 2026, the ED had found that several Bengaluru-based entities were facilitating cross-border transactions using crypto assets. They were found offering services including buying, selling and swapping of cryptos with fiat money in violation of RBI’s regulations. In November 2026, the ED had conducted searches at locations associated with crypto trading platforms CoinDCX and Delta Exchange for complaints of unauthorised cross-border transactions.
Strange dispersion of users
It is also quite surprising that more traders on crypto trading platforms are coming from tier 2 and 3 cities. A recent report in businessline shows that districts such as 24 Parganas North in West Bengal, Medchal Alkajgiri in Telangana, Kokrajhar in Assam and Kakinada in Andhra Pradesh rank among the top 10 districts in terms of transaction value, which is subject to TDS of 1 per cent, in FY25 and FY26. North 24 Paraganas had 33,000 users who had transacted in cryptos worth ₹2,000 crore in FY26. This is higher than the 19,100 users in Chennai, who had transaction value of ₹600 crore.
This trend is confirmed by the crypto platforms too. Zebpay’s report on its performance in the first half of 2026 reveals that tier-2 and tier-3 cities together accounted for around 62 per cent of all new registrations; with tier-3 cities contributing around 21 per cent. It is a trifle strange that traders from small towns of India are buying and selling on these platforms and may need a closer look.
Crypto platforms under PMLA
The Indian regulators are aware of the risks posed by crypto trading platforms. The RBI has been steadfast in its stance about not granting legal status to private cryptocurrencies. But an outright ban is also not a good solution since it will only make the traders go underground, and shift to overseas platforms.
The Centre had therefore tried to increase surveillance on crypto platforms by requiring them to register with Financial Intelligence Unit, India. The platforms have to comply with the PMLA Act, 2002 in following KYC procedures, reporting and record keeping.
The FIU, on its part, has been taking regular actions against non-complaint entities, conducting raids and investigations in some instances. It had also ordered 53 crypto platforms to be taken down due to non-compliance with the Act, though some of them have become compliant and re-registered with it.
Tax changes
Given the way the crypto trading is evolving in India, it is only right that the Centre extends the 30 per cent tax on the gains made in spot crypto transactions to crypto futures and options too. With the risk taken by traders in crypto derivatives being far higher than equity derivatives, it is only right that they are deterred by high tax rates.
The Centre had collected just ₹512 crore, ₹363 crore and ₹221 crore from crypto transactions in FY25, FY24 and FY23, respectively. These low collections appear to be primarily due to traders exploiting the tax arbitrage.
As far as the risk of cross-border transactions go, the Centre should revive its engagement with other countries to arrive at uniform regulations for cryptos; the Trump administration has brought these efforts to a standstill, though. Unilateral action in one country is unlikely to arrest the misuse of these assets.