India’s exchanges face consolidation in 2025 due to harsh taxation

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India’s digital asset exchanges are likely looking at a consolidation in 2025, with smaller exchanges either shutting down operations or merging with larger ones due to the country’s punishing taxation regime. 

The government has long treated digital assets with suspicion, so far as imposing one of the harshest taxation in 2022—30% flat tax on all digital currency income with no provision to offset losses and a 1% tax deducted at source (TDS) on all transactions above Rs 10,000 ($118). This may likely lead to a loss of about $1.2 trillion in trade volume on domestic exchanges over the years, a study from Esya Centre, an Indian policy think tank, claimed.

Seychelles-headquartered OKX, the second-largest global digital asset exchange by trading volume, shut down its India operations in 2024, citing regulatory hurdles. Domestic exchanges, however, have been increasingly complying with new regulatory demands. At the same time, exchanges have been requesting the government to establish a level playing field for virtual digital assets (VDAs). The requests include reducing TDS from 1% to 0.01%, allowing offsetting and carrying forward losses, and treating income from digital assets at par with other capital assets. 

“Crypto taxes being high is one issue, but the main drawback and the most concerning aspect is that there is no provision to offset losses. This is extremely unfair, especially for small investors,” said Avinash Shekhar, co-founder and chief executive of Pi42, a digital currency derivatives platform.

“While this issue might have a minimal impact during a bull market with growing trading volumes, the real concern arises during a bear market. Without the ability to offset losses, traders would need to take money out of their own pockets to pay taxes, even if they are in an overall loss. This discourages crypto traders and could lead to a decline in trading activity, ultimately reducing trading volumes on exchanges. This will discourage startups, and it is against ‘Make in India.’ This situation poses a serious problem,” Shekhar told CoinGeek. 

“As many countries are endorsing crypto and implementing crypto-friendly regulations, we urge the Indian government, on behalf of everyday crypto traders and investors, to at least introduce the option to offset losses,” Shekhar added.

But the requests have so far fallen on deaf ears. While the economy is looking to regulate the digital assets space, Finance Minister Nirmala Sitharaman said in March that ‘cryptocurrencies’ cannot be a legal currency in India. 

Moreover, in December, India informed that there is no fixed timeline for introducing comprehensive regulatory guidelines for VDAs in the country. As a result, the legal status of digital currency continues to be in limbo, with no specific legislation governing digital currency-based businesses in the country.

Consolidation, mergers, and shut downs

“Harsh crypto taxes are likely to drive consolidation among exchanges, with smaller platforms merging with larger ones or shutting down due to declining trading volumes and operational pressures,” pointed out Amit Kumar Gupta, a legal practitioner at the Supreme Court of India. 

“High-volume and innovative exchanges offering services like DeFi (decentralized finance), staking, or institutional trading may weather the storm by adapting to niche markets and leveraging scale. Despite industry appeals for tax relief, no policy changes are anticipated, leaving exchanges to navigate a challenging regulatory environment while advocating for long-term reforms,” Gupta told CoinGeek.

“In 2025, expect intensified consolidation as dominant players acquire smaller exchanges to expand user bases and streamline compliance with stringent regulations. Successful exchanges will prioritize innovative offerings like tokenized assets, cross-border solutions, and staking services to attract users and maintain profitability,” Gupta added.

Distrust in traditional banking systems

According to a September 2024 report by Chainalysis, India is the world leader in digital asset adoption, holding its position at the top of global rankings for the second consecutive year. 

The nation’s growing interest in digital currencies is driven by a desire for financial inclusion and a distrust in traditional banking systems, according to Statista. 

Uday Kotak, the founder of India’s third-largest private bank, Kotak Mahindra, labeled digital currency as an “alternate market currency” and a necessary counter hedge for governments worldwide who misbehave and are irresponsible on the fiscal or monetary side over long periods.

“With India maintaining its stringent crypto taxation policies, consolidation in the exchange sector seems inevitable. Smaller exchanges struggling with low margins may seek mergers or acquisitions to stay afloat,” said Rohan Sharan, founder and chief executive of Timechain Labs, an on-chain application development firm utilizing BSV blockchain technology. 

“We may witness a few high-volume exchanges dominating the market while others shut down due to regulatory pressure and declining user engagement. Unless the government revises taxation or introduces progressive regulations, innovation in the crypto exchange space may stall. However, blockchain utility platforms offering services beyond just trading may thrive amidst these challenges,” Sharan told CoinGeek.

Sharan, for instance, is looking to tokenize real-world assets (RWAs) like mutual funds instead of focusing on digital currencies. According to him, most payment aggregators in India have been shying away from digital assets due to the Reserve Bank of India’s (RBI) apprehensions about digital currencies.

According to Rohit Jain, chief strategy and investment officer of CoinDCX, India’s first digital currency unicorn, consolidation within the digital asset industry can be highly beneficial, as smaller players often face challenges with operational efficiency. 

“We remain focused on strategic opportunities, as evidenced by our recent acquisition of BitOasis in the Middle East. While we’ve built many innovations in India, our vision is global. We aim to deploy these capabilities worldwide and actively work in that direction,” Jain told CoinGeek. 

In July 2024, CoinDCX listed the BSV token for trading on its platform, allowing users to have more ways to buy, sell, and trade BSV. With CoinDCX’s close to 15 million registered users, the listing marks a significant expansion into the Indian market for BSV and demonstrates its potential and possibility in the region.

High trading volumes as temporary solution

2024 marked Bitcoin’s historic rise to $100,000. Donald Trump, America’s first ‘crypto president,’ committed to making the world’s largest economy a ‘crypto capital’ with plans to integrate Bitcoin into national reserves, leading to a significant surge in digital asset prices and trading volumes worldwide.

India’s digital asset exchanges, which had experienced a 90% volume drop since the imposition of 1% TDS, have reportedly witnessed five times higher trade volume after Trump’s victory.

“While high trading volumes might sustain some exchanges temporarily, without significant tax reforms or regulatory clarity, the industry may see reduced competition and innovation as firms struggle under financial pressures from taxation policies,” Sharat Chandra, founder of EmpowerEdge Ventures and a startup enabler, told CoinGeek. 

“With high crypto taxes persisting, consolidation among crypto exchanges in India appears likely. Many exchanges face challenges due to steep trading taxes, which could lead some smaller players to shut down or merge with larger entities seeking to maintain market share,” Chandra added.

Global exchanges may exploit the gap

India reportedly has about 2 crore (20 million) digital asset users with majority in the 18 to 35 age group.

“The current high taxation on cryptocurrency in India is literally pushing the country’s crypto exchanges into challenging waters. Many exchanges have faced a drop in their user base and are struggling to maintain profitability. Additionally, several payment providers have cut ties with crypto exchanges due to the stricter regulations, further weakening the ecosystem,” pointed out Raj Kapoor, founder of India Blockchain Alliance (IBA). 

“Given these circumstances, there is a high probability of consolidation within India’s crypto exchange industry. Smaller exchanges, unable to cope with compliance costs or diminished volumes, may merge with larger players or shut down entirely. The higher taxes discourage innovation and new investments, making it difficult for exchanges to differentiate themselves or scale effectively,” Kapoor told CoinGeek.

“On the other hand, global exchanges may look to exploit the gap by offering services without the same tax burden. This might lead to a further decline in the market share of Indian exchanges, forcing them to adopt cost-cutting strategies or seek mergers,” Kapoor added. 

According to the Esya Centre study, as much as $3.85 billion has moved to overseas digital asset trading exchanges as traders look to evade punishing taxes in India.

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