Is the Era of Tax-Free Offshore Crypto Trading Finally Over?
As India enforces CARF and retrospective tax laws, offshore crypto users face unprecedented legal and financial consequences
6 May 2025, New Delhi
For years, offshore cryptocurrency exchanges have allowed Indian users to sidestep local tax laws, particularly the mandatory 1% TDS on crypto transactions. By promoting “zero tax” trading, these platforms have encouraged a false sense of immunity from taxation. But that illusion is rapidly collapsing.
Traders relying on foreign platforms to stay off the radar of Indian tax authorities must now reconsider their approach. The Indian government has initiated strict enforcement actions to eliminate such loopholes, with the upcoming implementation of the Crypto-Asset Reporting Framework (CARF) set to expose previously undisclosed offshore transactions. Once operational, CARF will empower tax departments to track cross-border crypto activity and impose not just back taxes, but also steep penalties for non-disclosure.
A Global Crackdown Is Underway
CARF is modeled after the Common Reporting Standard (CRS) and has already seen participation from 63 countries. This global framework mandates the exchange of crypto transaction data between jurisdictions, effectively removing the anonymity traders once relied on. What this means for users:
• Every trade on a foreign exchange could now be monitored by Indian tax authorities.
• Undisclosed income may attract penalties far exceeding the tax owed.
• Enforcement agencies are prepared to investigate and prosecute tax evasion.
Offshore Platforms Have a History of Non-Compliance
The track record of offshore exchanges raises serious concerns:
• They have consistently failed to deduct TDS, defying clear Indian tax rules.
• They offer no protection against user liability and often disregard domestic legal frameworks.
• Continued use of such platforms could lead to direct exposure to financial investigations.
By contrast, Indian exchanges comply with taxation rules by deducting TDS and maintaining proper transaction records. This not only aligns with the law but also supports a fairer and more transparent crypto market. With CARF and stricter compliance requirements taking effect, the risks of using non-compliant platforms are greater than ever.
No More Exceptions—India Gets Serious on Crypto Tax
Recent amendments to the Income Tax Act now require designated entities to report all virtual digital asset (VDA) transactions. Key implications include:
• A potential 60% tax on unreported gains, plus a 50% penalty on the tax amount.
• Investigations into individuals using offshore platforms to evade taxes.
• Restrictions on non-compliant platforms unless they register and meet Indian legal requirements.
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Furthermore, under both existing laws and the proposed Income Tax Bill, the possibility of retrospective taxation is on the table. This could mean that even trades from prior years—executed without paying TDS—may be subject to tax and penalties, regardless of whether the user was aware of the obligation.
The age of unregulated crypto trading on foreign platforms is drawing to a close. With data-sharing protocols like CARF and aggressive enforcement now underway, Indian crypto traders must adapt or face serious consequences.
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