Domestic cryptocurrency exchanges in India captured just 0.7% of the $88.4 billion in centralized exchange inflows generated by local users between July 2025 and June 2026, according to regional data published by Chainalysis on Sept. 30. Despite generating the largest volume of centralized exchange activity in Central and Southeast Asia and Oceania, Indian traders overwhelmingly routed transactions to platforms based abroad.
Divergence Between Indian and Brazilian Platform Shares
India's domestic platform market share suffered a steep decline in mid-2022, falling from approximately 7% down to its current 0.7% level. In contrast, the Latin America report released by Chainalysis on Sept. 23 shows that Brazil-based exchanges increased their share of local inflows from 1.5% to 12.5%. Overall, Brazil recorded $252.5 billion in broader crypto market activity during the same period ending June 30, despite experiencing a minor 1.6% contraction.
Chainalysis attributes activity using website traffic adjusted for income differences based on the square root of GDP per capita, noting that local platforms receive only a fraction of total national volume. Similar regulatory shifts and compliance mandates across emerging markets, such as Binance enforcing cross-border compliance rules in Brazil, highlight how exchange venue choices respond to domestic regulatory structures.
Tax Friction and Offshore Migration Drivers
Industry executives point to domestic tax policy as a key contributor to the migration toward offshore exchanges. Under current Indian tax rules, a 1% tax deducted at source (TDS) applies to virtual digital asset (VDA) transfers paid to residents, subject to tax-year aggregate thresholds of ₹50,000 for eligible individuals or Hindu undivided families and ₹10,000 for other payers.
Because the deduction is calculated against the full transaction consideration rather than net capital gains, liquid trading capital is immediately reduced upon each trade. For instance, a ₹100,000 transaction leaves the seller with ₹99,000 in available trading balance before exchange fees. CoinSwitch co-founder Ashish Singhal told Chainalysis that tax friction drives users toward foreign platforms, which may not enforce the withholding tax at the point of trade.
Key Takeaways
- India Inflows: Indian users generated $88.4 billion in centralized exchange inflows, leading the CSAO region.
- Domestic Market Share: Local Indian exchanges received only 0.7% of overall exchange inflows, down from 7% in mid-2022.
- Brazil Comparison: Brazil-based platforms captured 12.5% of regional inflows out of $252.5 billion in total activity.
- Tax Deductions: A 1% withholding tax (TDS) deducts capital directly from trading proceeds, creating operational liquidity friction for local traders.
Why It Matters
The severe drop in local exchange participation underscores how strict domestic tax policies can unintentionally push market activity toward uncompliant or foreign venues. By reducing immediate capital efficiency, high transaction-level withholding taxes incentivize retail traders to seek non-custodial or offshore alternatives. Policy makers may need to evaluate whether stringent tax enforcement achieves its revenue goals without unseating compliant domestic infrastructure.
