tl;dr
Bybit, a major global crypto exchange, has introduced an 18% GST on trading and transaction fees for Indian users, adding to the existing 30% flat income tax on digital asset gains and a 1% TDS on transactions over Rs 10,000. This move closes tax loopholes previously exploited by Indian traders usin...
Bybit, a major global digital asset exchange, has implemented an 18% Goods and Services Tax (GST) on trading and transaction fees for users based in India. This GST is in addition to the existing 30% flat income tax on digital asset gains and a 1% tax deducted at source (TDS) on transactions exceeding Rs 10,000 ($116). Previously, many Indian traders opted for overseas exchanges to avoid heavy local taxes, but Bybit’s compliance is closing that loophole.
The GST applies across all transaction types, including spot and margin trades, derivatives, fiat conversions, and cryptocurrency withdrawals, with the amounts deducted directly from assets received. Bybit will also discontinue several services for Indian users such as legacy crypto loans, the Bybit card, and various trading bots, beginning with card transaction restrictions from July 17 and auto-repayment of outstanding borrowings.
Experts like Raj Kapoor of India Blockchain Alliance view this move as a significant indicator that Indian tax authorities are expanding enforcement to offshore exchanges serving Indian residents. The narrowing tax arbitrage advantage could push more global platforms to comply with India’s tax regulations, marking a shift in regulatory oversight that aligns with the country’s aggressive compliance efforts since 2022.
Bybit’s move sets a precedent, as many international exchanges have yet to publicly commit to GST adherence. The adoption of the Online Information Database Access and Retrieval (OIDAR) framework signals broader enforcement to include foreign digital service providers, encouraging tax compliance across the sector. Domestic Indian exchanges already implement GST either within or transparently atop trading fees, contrasting with non-compliant international platforms who sometimes bypass GST and TDS obligations.
This tightening of regulations aims to close tax gaps that have historically allowed tax evasion via offshore platforms. Enforcement has intensified, with Indian tax authorities issuing notices for unpaid dues to exchanges and users alike, underscoring a zero-tolerance stance. Industry leaders warn that investors using non-compliant platforms face regulatory risks and potential exposure to bad actors.
India’s taxation regime for digital asset trading, including the substantial 30% flat tax on gains without loss offset provisions, 1% TDS on transactions, and now 18% GST on fees, poses a major profitability challenge. A study estimates a potential $1.2 trillion loss in trade volume on domestic exchanges due to high taxation, prompting some exchanges like OKX to exit the Indian market. The landscape is expected to consolidate by 2025, with smaller players merging or shutting down.
The growing tax burden could push traders toward decentralized and peer-to-peer networks, risking increased underground crypto activity. Experts emphasize that while layered taxes squeeze margins and may reduce retail trading, predictability in tax policy is crucial to foster innovation rather than uncertainty halting market participation.
Active traders face an uphill battle maintaining profitability under these rates; only high-frequency traders with large capital, long-term investors, or users on decentralized exchanges may sustain viable returns. Nonetheless, longer-term strategies and structured arbitrage remain possible approaches within India’s maturing crypto market.
Local exchanges continue urging government reforms such as reducing TDS rates, allowing loss offsets, and aligning digital asset income treatment with other capital assets, but thus far, policymakers have been resistant. Finance Minister Nirmala Sitharaman reaffirmed in early 2024 that cryptocurrencies will not be recognized as legal tender in India.
Despite the heavy taxation, India leads globally in crypto adoption, reflecting strong belief in the long-term value of digital assets. Industry voices advocate for rational tax policies to reduce friction, enhance domestic liquidity, and curb capital flight, enabling sustainable innovation and investor confidence within a compliant framework.