Bitcoin ETFs Offer Tax Escape for Squeezed Indian Investors

• Bitcoin ETFs Avoid 1% TDS in India
• Cryptocurrencies suffer from 30% flat tax
• ETFs allow for loss offsetting and lower taxation

The cryptocurrency market in India faces a significant hurdle: a tax regime that investors find stifling. As Bitcoin trading volumes reach the ₹1 crore mark, the gains made, which have risen over 120% in the past few years, are being severely curtailed by stiff taxation.

The current structure imposes a flat 30% tax on cryptocurrency profits, plus a 4% surcharge. In addition, all transactions, even those without profits, are subject to a 1% TDS (Tax Deducted at Source), which directly impacts the liquidity of digital assets.

🇮🇳 𝐈𝐍𝐃𝐈𝐀 𝐂𝐎𝐍𝐒𝐈𝐃𝐄𝐑𝐈𝐍𝐆 𝐂𝐑𝐘𝐏𝐓𝐎 𝐓𝐀𝐗 𝐑𝐄𝐋𝐈𝐄𝐅?

From 2 meetings a year to 1 every month—India's crypto leaders are turning up the heat.

Push to cut 30% tax remove 1% TDS is gaining heat. Even RBI's tone has softened. pic.twitter.com/RAF7xwWDYt

— Sapna Singh (@earnwithsapna) May 27, 2025

There is no possibility of offsetting losses with other gains, nor of carrying losses forward to subsequent years. Another aggravating factor is the lack of differentiation between short-term and long-term positions. With these limitations, tax planning becomes unfeasible for local investors, especially those who operate with cryptocurrencies such as Bitcoin.

Given this scenario, Bitcoin ETFs are being seen as a legal strategy and efficient to mitigate the tax burden. Since they are not classified as Virtual Digital Assets (VDAs), these funds are treated as units of foreign mutual funds, which grants them differentiated tax treatment.

When held for more than 24 months, Bitcoin ETFs are taxed at just 12,5% ​​as long-term capital gains. Furthermore, they are not subject to TDS withholding and allow for offsetting losses against other assets, in addition to the possibility of carrying forward these losses to future periods.

According to high net worth investors (HNIs), this structure can reduce the tax burden by up to 60% compared to direct investments in Bitcoin, making ETFs an increasingly attractive alternative.

However, direct investments in Bitcoin are still a concern in the country due to the lack of SEBI regulation. Platforms such as Vauld and WazirX have been questioned for their lack of investor protection, with WazirX recently claiming that around ₹5.000 crore in funds were “owned by the company”, raising eyebrows and alarm in the market.