1% TDS Under Fire: India’s CBDT Opens the Door to Crypto Reform

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🔑 Key Takeaways

  • India’s Central Board of Direct Taxes (CBDT) has begun stakeholder consultations on a dedicated crypto framework, including potential changes to the 1% TDS and rules on loss offsetting.

  • Inflation has cooled in 2025, but retail investors still use crypto for diversification; India remains a global leader in grassroots adoption, even under tough taxes.

  • Access & perception: UPI’s dominance and FIU-registered exchanges make on-ramps familiar, but prior offshore migration and RBI skepticism shape behavior.

  • Regional context: Indonesia, Vietnam and the Philippines show rapid adoption; Singapore/Japan lead on licensing clarity—India’s gap is policy certainty.

  • CryptoQuibbler: If CBDT trims TDS and allows loss set-offs, India could unlock domestic liquidity without sacrificing compliance.

CryptoQuibbler illustration of India’s CBDT officials analyzing crypto tax reforms with rupee and bitcoin icons on glowing dashboards.

🗞 Main Story

India’s CBDT is formally engaging crypto exchanges and other market participants to determine whether current law suffices or a new statute is needed, which agency should administer it, and how to make taxes more equitable. The outreach explicitly asks whether the 1% TDS on every sale is too high, what an appropriate rate would be, and whether loss set-offs should be permitted—issues at the core of India’s trading exodus.

Policy narrative: from prohibition scares to pragmatic reviews.

  • 2018: RBI’s banking restrictions choked fiat rails for crypto;

  • 2020: Supreme Court quashed the RBI circular, reopening access;

  • 2022: Finance Act imposed 30% gains tax + 1% TDS, with no loss set-off;

  • 2023–2024: FIU cracked down on offshore exchanges; Binance registered in 2024 after penalties; Coinbase registered in 2025;

  • 2025: CBDT asks industry how to recalibrate the regime.

Inflation & household behavior. Inflation has eased markedly in 2025 (recent readings near ~2–3%), yet household interest in crypto persists—less as an inflation hedge today and more as a diversification and long-run rupee depreciation hedge.

Access & user journey. UPI’s ubiquity (multi-billion monthly transactions) normalizes digital money habits that make crypto intuitively familiar, while FIU registration of major exchanges restores onshore options. Still, the 1% TDS has nudged activity to futures/derivatives and offshore venues, a distortion policymakers now acknowledge.

Regional lens. Chainalysis shows India #1 in global grassroots adoption, with Indonesia (#3), Vietnam (#5), Philippines (#8) also ranking high. India’s opportunity: keep its user base while delivering clear, bankable rules akin to Singapore/Japan’s licensing frameworks.

👉 Bottom line: CBDT’s outreach signals a pivot from blunt deterrence to calibrated regulation—a test of whether India can maintain oversight and keep liquidity onshore.

CryptoQuibbler artwork of a Mumbai kirana shop where locals use UPI and crypto QR payments in a busy evening street market.

🔬 Expert Opinions

  • Nischal Shetty, Founder, WazirX/Shardeum: called the 1% TDS “the worst-case scenario for the industry.”

  • Sumit Gupta, Co-founder & CEO, CoinDCX: has argued that cutting TDS to ~0.01% would bring trades back onshore and still preserve traceability.

  • T. Rabi Sankar, Deputy Governor, RBI: has repeatedly warned that private cryptocurrencies threaten financial stability, once calling a ban “the most advisable choice.” (RBI stance reiterated in 2025.)

🌟 Implications

  • For traders: Lower TDS + loss set-offs would reduce friction, revive spot liquidity, and improve price discovery domestically.

  • For exchanges: FIU compliance plus CBDT reform could re-onshore volume and stabilize business models.

  • For RBI & regulators: Clear rules reduce shadow activity, enabling better AML visibility while coexisting with the e-rupee (CBDC) pilots.

  • For Asia competition: India’s massive user base + predictable taxes could surpass regional peers that have clarity but smaller scale.

CryptoQuibbler visualization of the Reserve Bank of India HQ with a flowing e-rupee ribbon crossing digital exchange order books under compliance shields.

📝 Editorial Opinion

🎯 From deterrence to design: can CBDT fix the incentive stack?

India’s tax architecture accidentally externalized liquidity—the 1% TDS penalized high-frequency and market-making flows, pushing activity offshore and into derivatives. If CBDT cuts TDS to a traceability-preserving floor (0.01–0.1%) and permits loss set-offs, onshore books can rebuild without blinding the tax net. This is not deregulation; it’s better regulation.

📈 Inflation is low—so why is crypto sticky?

With CPI cooling in 2025, the “inflation hedge” story has faded, but crypto’s appeal as a diversification and FX-exposure proxy remains in a savings culture facing long-run rupee depreciation risk. UPI’s success trained consumers to trust digital wallets, lowering behavioral switching costs. As analyzed by CryptoQuibbler, macro calm doesn’t cancel the digital-asset learning curve—it accelerates it.

🏦 RBI skepticism vs. market reality

The RBI’s posture—often openly hostile to private crypto—coexists with a surging UPI and expanding e-rupee tests. That tension will define 2026: CBDT may enable trading; RBI will still police systemic risk. The compromise is visibility + walls: FIU-registered on-ramps, travel-rule compliance, and ring-fencing leverage.

🌏 India vs. Asia: scale meets certainty

Singapore and Japan offer crisp licensing, while India offers scale and the world’s deepest grassroots usage. The missing piece is certainty: a published crypto code aligning tax, FIU, and RBI expectations. Do that, and Delhi owns the region’s order book.

🧭 CryptoQuibbler’s Verdict

CBDT’s consultations are India’s chance to swap policy theatre for policy engineering. Trim TDS, allow loss set-offs, codify FIU-first compliance, and India retains users at home—without sacrificing control. Fail, and liquidity will keep routing around Delhi.

📘 Key Term Explanations

  • TDS (Tax Deducted at Source): A withholding tax collected on each crypto sale (currently 1%); authorities are reviewing the rate.

  • Loss set-off: Allowing trading losses to offset gains for tax purposes (currently disallowed for crypto).

  • FIU-IND registration: AML registration for VDA service providers; Binance registered in 2024 after enforcement action.

  • UPI: India’s real-time retail payment rail used by hundreds of millions; the behavioral bridge to wallet-based finance.

  • CBDC (e-rupee): RBI’s digital rupee pilots expanding in 2025 with more participants and features.

🛬 Sources

  • Reuters – “India reviewing crypto position due to global changes, senior official says.”

  • Economic Times – “RBI says banks can’t use its 2018 circular to ban crypto.”

  • Reuters – “Binance registers with India’s FIU to resume operations.”

  • FIU-IND Order PDF – “Penalty on Binance for PMLA violations.”

  • Reuters – “Coinbase registers with India’s FIU.”

  • Times of India – “CBDT asks stakeholders on regulation, compliance; VDA oversight in focus.”

  • Economic Times – “Does India need a new VDA law? CBDT asks crypto players.”

  • Chainalysis – “2024 Global Crypto Adoption Index (CSAO: India #1).”

  • TradingEconomics – “India Inflation Rate (2025).”

  • PIB (Govt of India) – “CPI components July 2025 (provisional).”

  • ET BFSI – “CBDC retail pilot crosses 60 lakh users; offline & programmable features.”

  • Economic Times (2022) – “The 1% TDS that has India’s crypto industry predicting chaos.”

  • Yahoo Finance (2023) – “CoinDCX: reducing TDS to 0.01% would bring trades back.”

  • Reuters (2022/2025) – “RBI Deputy Governor: cryptos akin to Ponzi; stance unchanged.”


By Heejoong Kim – Editor-in-Chief, CryptoQuibbler

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