Only 22% of Indian crypto traders reported TDS income in FY23. The government’s 'high risk' label for the sector is now backed by intelligence on trafficking and fraud.
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India’s government formally classified the entire virtual digital asset sector as “high risk” in a note presented to the Parliamentary Standing Committee on Finance. The label, delivered during a review chaired by BJP MP Bhartruhari Mahtab around May 20-21, draws on intelligence reports linking crypto to drug trafficking, money laundering, human trafficking, radicalization, and cyber fraud.
The classification is not abstract. The committee saw hard numbers that expose a compliance gap so wide it practically guarantees further enforcement. In FY23, only 1.39 lakh out of 6.45 lakh individuals subject to Tax Deducted at Source (TDS) on crypto transactions actually reported their income. Roughly 78% of people who traded crypto and had taxes withheld simply skipped the disclosure process.
Tax collectors are taking in more money – VDA tax collections rose from ₹269 crore in assessment year 2023-24 to ₹437 crore in AY 2024-25, a 62% increase. TDS collections jumped from ₹220.82 crore to ₹364.62 crore, up 65% over the same period. The government is capturing more revenue as trading volume grows. The compliance hole remains the structural vulnerability.
The parliamentary committee held informal meetings with major crypto exchanges operating in or adjacent to the Indian market. Participants included Binance, WazirX, and ZebPay. Those exchanges pushed for regulatory clarity and a more rational tax framework. The current regime – a flat 30% tax on VDA gains plus 1% TDS introduced in 2022 – has not changed since implementation. The industry calls it punitive. The government sees it as a minimum baseline.
| Metric | AY 2023-24 | AY 2024-25 | Growth |
|---|---|---|---|
| VDA tax collections | ₹269 crore | ₹437 crore | +62% |
| TDS collections | ₹220.82 crore | ₹364.62 crore | +65% |
The 62% increase in VDA tax revenue and 65% jump in TDS collections show that even with low compliance, the government extracts more money as activity rises. The 78% non-reporting rate means the potential tax base is several times larger. That gap is the primary reason the government framed the entire sector as high risk.
Government officials presented intelligence inputs to the committee that painted a broad illicit-use picture. The list of cited activities is specific:
Officials also flagged a large disparity between reported incomes and actual crypto trading activity. The implication: the compliance problem extends well beyond negligence. A significant portion of trading volume is likely invisible to tax authorities and financial intelligence units.
One trend caught the committee’s attention directly: investment capital flowing offshore. Indian traders, squeezed by the punitive tax regime at home, have increasingly turned to foreign platforms. Capital moves outside the domestic regulatory perimeter, weakening the Financial Intelligence Unit of India (FIU-IND) ability to monitor on-chain activity and further eroding the tax base.
India has not been passive. The FIU-IND has registered 54 VDA service providers and imposed cumulative penalties of ₹29 crore on several offshore platforms. The penalized exchanges include KuCoin, Binance, Coinbase, and Bybit.
The enforcement record also shows:
Despite these actions, the compliance gap persists. Enforcement is catching up but has not closed the disconnect between registered users and filing taxpayers.
The Reserve Bank of India continues to oppose formal regulation of crypto assets. The central bank’s stance has been consistent for years: it would rather not legitimize a sector it views as fundamentally risky to financial stability.
This creates a paradox. Tax authorities are collecting hundreds of crores from crypto activity. The FIU is registering and penalizing exchanges. Parliament is holding committee reviews. The central bank still refuses to give the industry a formal regulatory home. Crypto is taxed but not fully regulated. Exchanges operate without clear licensing frameworks.
The parliamentary committee is now evaluating India’s VDA regulatory framework against global standards. No specific tokens or projects were discussed during the deliberations. The review will likely compare India’s approach with jurisdictions that have introduced licensing regimes, stablecoin oversight, and travel-rule compliance.
A concrete near-term risk: if the committee endorses stricter measures based on the intelligence inputs, expect more URL blocks, higher penalties for unregistered offshore exchanges, and possibly a push for mandatory transaction reporting for all crypto wallets linked to Indian residents.
For traders operating in or exposed to India, three variables dominate:
The 78% tax gap virtually ensures that the next government action will be enforcement-driven, not reform-driven. Traders and exchanges should prepare for tighter reporting requirements and broader surveillance of on-chain activity connected to India.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.