India’s crypto ecosystem continues to attract millions of users despite one of the world’s toughest tax regimes for Virtual Digital Assets (VDAs). However, the country’s current policy framework may be changing where Indians trade rather than reducing their interest in cryptocurrencies, according to Nischal Shetty, Co-founder of Shardeum and WazirX.
In an exclusive interaction with ABP Live ahead of the Income Tax Return (ITR) filing deadline on July 31, Shetty (pictured above) spoke about the biggest tax mistakes crypto investors make, why the 30% tax and 1% TDS continue to weigh on the industry, and the single policy change he believes could unlock India’s next wave of blockchain innovation.
‘Every Taxable Crypto Transaction Matters’
With thousands of investors preparing to file their ITRs, Shetty warned that many still misunderstand how India’s VDA taxation works. “The biggest mistake is assuming that crypto transactions don’t need to be reported unless you’ve converted them back to INR.” He stressed that crypto-to-crypto trades are also taxable events under India’s tax framework.
“Every taxable VDA transaction matters, including crypto-to-crypto trades.” According to Shetty, another major issue is poor record-keeping. “Many investors trade across multiple platforms and wallets but fail to consolidate their transaction history before filing.”
He added that investors often overlook TDS deductions, fail to reconcile exchange statements or attempt to offset crypto losses against other income, something that is not permitted under the current rules.
“The best approach is to maintain accurate records throughout the year instead of trying to reconstruct them at the last minute.”
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30% Tax, 1% TDS: ‘Interest Didn’t Reduce, Trading Shifted’
India’s crypto tax framework introduced a flat 30% tax on gains from VDAs alongside a 1% Tax Deducted at Source (TDS) on qualifying transactions. While the measures were aimed at improving tax compliance, Shetty believes they have had unintended consequences.
“The taxes didn’t reduce interest in crypto; they changed where people trade.” According to him, India continues to have one of the largest crypto communities globally, but a significant share of trading activity has moved to overseas exchanges. “The 1% TDS, in particular, affected liquidity because it locks up capital on every trade, making high-frequency or active trading inefficient.”
Shetty noted that although trading volumes on domestic platforms have been impacted, long-term investors continue participating in the market.
“The good news is that developer activity, startup innovation, and user curiosity around blockchain remain incredibly strong despite these challenges.”
Compliance Shouldn’t Come At The Cost Of Innovation
Asked whether India’s current crypto tax regime promotes compliance, Shetty argued that every tax policy should balance revenue generation with ease of participation.
“Every tax policy should strike a balance between revenue collection and encouraging compliance.” He believes higher compliance costs naturally encourage users to explore alternatives. “When compliance becomes significantly more expensive than participation, users naturally look for alternatives.”
According to Shetty, the migration of trading activity to offshore platforms weakens India’s regulated crypto ecosystem. “That doesn’t necessarily reduce crypto adoption, it simply moves it outside India’s regulated ecosystem.”
He added that if the government’s objective is stronger investor protection and better tax compliance, policies should encourage users to remain on regulated Indian platforms rather than unintentionally pushing them overseas.
India Has The Talent, But Needs Regulatory Clarity
Despite policy uncertainty, Shetty remains optimistic about India’s long-term crypto prospects. “India has one of the strongest foundations for digital asset adoption anywhere in the world.”
He attributed this to the country’s young population, technology-first mindset, world-class developer ecosystem and rapid adoption of digital financial services. “We have a young, technology-first population, world-class developers, rapid digital payment adoption, and increasing familiarity with digital financial products.”
According to Shetty, the opportunity extends well beyond cryptocurrency trading. “Beyond trading, there is growing interest in tokenization, decentralized finance, gaming, creator economies, and blockchain infrastructure.”
He also called for a comprehensive regulatory framework covering licensing, consumer protection, custody standards and compliance norms to help the industry mature. “Entrepreneurs and investors are willing to comply when the rules are clear.”
‘Reduce 1% TDS’: Shetty’s Biggest Recommendation To Government
If he could recommend just one immediate policy change, Shetty said he would lower the 1% TDS. “The single most impactful change would be reducing the 1% TDS to a much lower rate that enables efficient market participation while preserving transaction visibility for regulators.”
According to him, a lower TDS would encourage more trading activity to remain within India’s regulated exchanges while improving transparency and supporting long-term tax collections.
“A calibrated approach would encourage more trading activity to remain on compliant Indian platforms, improve transparency, strengthen tax collections over time, and create a healthier ecosystem for innovation.”
Shetty believes India already possesses the talent, developer ecosystem and user base required to become a global blockchain leader. What the industry now needs, he said, is policy certainty. “Good regulation should protect users while also enabling India to remain globally competitive in one of the fastest-growing technology sectors.”
