India Loves Crypto. So Who Gets the Business? The Local Exchange Puzzle

Here's a puzzle that doesn't add up at first glance.

India is one of the biggest crypto markets in the world. Millions of people trade, invest and experiment with digital assets. Year after year, it ranks near the top of global adoption reports. By almost any measure, India loves crypto.

And yet India's own crypto exchanges are barely getting any of the business.

According to research from Chainalysis, India-based users sent about $88.4 billion to crypto exchanges between July 2025 and June 2026. Domestic platforms received just 0.7% of it. The rest went abroad.

So where did the business go, and why? Let's unpack it.

A market that's huge, but not at home

Think of India's crypto market as a giant marketplace where most shoppers walk past the local stalls and buy from stores across the border.

The demand is clearly there. India has a young, mobile-first population, a booming fintech culture and a strong appetite for new ways to invest. Crypto fits right into that.

But the money isn't staying local. Data presented to Parliament in May 2026 suggested that about 90% of Indian crypto trading volume happens on offshore platforms. Chainalysis's figure of 0.7% for domestic exchanges' share of value received paints an even starker picture.

What happened in 2022

To understand the gap, you have to go back to 2022, when India introduced a new tax framework for crypto. Two rules stand out:

1. A 30% tax on crypto gains, with very limited ability to offset losses.
2. A 1% tax deducted at source (TDS) on crypto transfers above a threshold.

The 30% tax is steep, but it applies wherever you trade, at least on paper. The 1% TDS is the one that changed behaviour.

Here's why. Every time a trader sells, the platform withholds 1% of the transaction value. That doesn't sound like much on a single trade. But active traders make dozens or hundreds of trades. Each one takes another 1% off the money they can trade with.

Imagine starting the week with ₹1,00,000 and trading it back and forth twenty times. Even before any profit or loss, the money held back as tax piles up quickly. For a frequent trader, that's a serious drag on their working capital.

Why offshore platforms won

Indian exchanges that follow the rules withhold the 1% TDS. Offshore platforms may not. CoinSwitch co-founder Ashish Singhal pointed to exactly this difference.

So traders faced a simple choice:

• Trade locally, where every sale has 1% held back.
• Trade offshore, where it often isn't.

Many chose offshore. Not because they didn't trust local platforms, but because the cost of trading there was higher. When the same product costs more at one shop, customers go elsewhere. Crypto traders are no different.

The timing fits. Indian exchanges held about 7% of the flow before mid-2022. After the tax rules took effect, that share collapsed.

The unintended consequences

Policies often have side effects, and this one has several.

Less visibility, not more

One goal of the TDS was to create a paper trail for crypto transactions. But when trading moves offshore, much of it slips out of easy view. The rule meant to increase transparency may have reduced it.

Local businesses lose out

Indian exchanges employ people, pay taxes and build products for the local market. When users leave, those businesses struggle to grow. Some have cut staff or changed strategy.

Users take on more risk

Offshore platforms may not offer the same local protections as regulated domestic ones. If something goes wrong, Indian users may find it harder to get help or recover funds. Concentrating trading abroad also means more exposure to problems they can't easily resolve at home.

What could change the picture

People in India's crypto industry have long argued that a few changes could bring business back home:

• Lowering the TDS rate, for example to 0.01%, so it still creates a record without draining traders' capital.
• Allowing losses to be offset, which would make the tax fairer for people who trade actively.
• Enforcing rules evenly so that offshore platforms serving Indian users play by the same rules as domestic ones.
• Clearer regulation overall, giving businesses and users more confidence.

None of these changes is guaranteed. But the data makes a strong case that the current setup isn't achieving everything it was meant to.

What it means for everyday users

If you're an Indian crypto user, here are a few practical points:

1. Understand your tax obligations wherever you trade. Moving offshore doesn't erase them.
2. Think about protection, not just cost. A cheaper platform isn't better if your funds aren't safe.
3. Keep good records of every trade.
4. Watch for policy updates. Any change to the TDS could quickly shift where it makes sense to trade.

The bigger lesson

India's local exchange puzzle isn't really about crypto. It's about how rules shape behaviour.

When a policy makes something more expensive in one place than another, people move. That's true for factories, for shoppers, and for crypto traders. India built a huge crypto market, but the way the tax rules were designed sent much of the business elsewhere.

The bottom line

India loves crypto. The numbers prove it. The question is who gets the business, and right now the answer is mostly platforms outside India.

Whether that changes depends on policymakers. If the rules are adjusted, India's domestic exchanges could win back a big share of a very large market. If not, the boom will keep happening, just not at home.

This article is for information only and is not financial or tax advice. Tax rules can change, so check the latest guidance or speak to a qualified adviser.