I was scammed on a crypto exchange or by a crypto investment scheme. What can I do?

Crypto fraud in India takes recognisable forms — knowing the patterns is the first defence.

Fake exchange websites use domain names mimicking established exchanges (binance-india.com, wazirxx.com); deposited funds are immediately stolen. Telegram / WhatsApp 'investment groups' promise guaranteed returns through 'expert trading', then empty the wallet or vanish. Pump-and-dump schemes coordinate buying of low-volume tokens then dump on retail buyers. Romance scams build a relationship on dating sites, then 'introduce' the victim to a fake crypto opportunity.

Rug pulls launch new tokens with marketing hype, then developers disappear with funds. Fake celebrity endorsements — Elon Musk, Mukesh Ambani, MS Dhoni deepfakes promoting fake schemes. Mining schemes promise crypto mining returns, require initial deposit, then vanish. Recovery scams target already-scammed victims with promises to recover lost crypto for an upfront fee.

Wallet draining malicious websites or apps drain wallets when connected. SIM swap attacks hit accounts using SMS-based 2FA (see our SIM swap guide). Fake 'P2P traders' on legitimate exchanges scam during trade execution.

Most scams exploit psychology — FOMO, urgency, social proof and confidence in 'experts'. The technology is just the medium.

Since the 7 March 2023 Gazette notification brought Virtual Digital Asset Service Providers (VDA-SPs) under the PMLA, every crypto exchange serving Indian users must comply with a specific set of obligations.

Register with the Financial Intelligence Unit (FIU-IND) as Reporting Entities. Conduct KYC on all customers — Aadhaar and PAN-linked. Maintain transaction records for 5 years. Report Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs) to FIU-IND. Designate a Principal Officer and Designated Director responsible for compliance. Comply with sanctions screening.

In late 2023, FIU-IND blocked access to several non-compliant offshore exchanges — Binance, Kraken, KuCoin, Bitfinex among them. Use only FIU-IND-registered exchanges — verify on the FIU-IND website registered entities list.

If a non-compliant exchange has defrauded you, file with FIU-IND in addition to regular cybercrime channels. The exchange will face penalties, and your funds may be partially recoverable from frozen accounts.

Move quickly — crypto transactions are irreversible, so the recovery window is narrow.

Call 1930 — the Cyber Fraud Helpline. If the scam involved an INR-to-crypto deposit on an Indian exchange, your bank or UPI funds may still be freezable in the beneficiary account. File on cybercrime.gov.in with transaction screenshots, wallet addresses, exchange details, and communication trail with the scammer.

Notify your bank in writing — even though crypto transactions are irreversible, banks can flag account anomalies and prevent further drainage. Block compromised wallets: move remaining funds to a fresh, secure wallet and rotate seed phrases. Take complete screenshots — scammer communication, transaction hashes, websites, group chats. Crypto evidence chains are technical, so preserve them completely.

File FIR at the police station — see our Zero FIR guide. Report on the exchange platform if the scammer used a legitimate exchange. Trace addresses on blockchain explorers — Chainalysis (commercial), Etherscan (Ethereum) and Whale Alert can show fund movement. Beware of 'recovery scams' — never pay anyone upfront promising to recover your crypto.

Partial recovery is possible in specific scenarios, but full recovery is rare.

Recovery is likely when: the scam involved a registered Indian exchange and was reported within hours (the exchange can freeze the receiving account); funds moved through a centralised exchange in the chain (exchanges respond to police orders); the same scam has multiple victims (class action via cyber cell or Enforcement Directorate under PMLA); or the scammer is identified and arrested (possible in India-based scams).

Recovery is difficult when: funds moved to private wallets that don't transit centralised exchanges; the scammer is based in a non-cooperating jurisdiction; funds are laundered through multiple chains and mixers (Tornado Cash and similar); or the wallet seed phrase was compromised — no third party can help there.

Recovery scams to avoid: anyone asking for upfront fees to 'recover' your crypto; 'hackers' on Telegram or WhatsApp claiming to retrieve funds; fake 'crypto investigators' charging by the hour without a track record; lawyers promising guaranteed recovery for an advance fee.

Genuine recovery efforts work through cyber police, FIU-IND, exchange compliance teams, and — for very large amounts — blockchain analytics firms. Engage a reputable, specialised cyber / crypto lawyer who works through documented government channels.

Indian crypto tax rules are punitive, especially where losses are involved.

Under Section 115BBH of the Income-Tax Act, 1961, income from Virtual Digital Asset (VDA) transfer is taxed at a flat 30% plus surcharge plus 4% cess. No deduction is allowed except cost of acquisition — you cannot claim trading fees, platform charges, electricity for mining, or internet costs. Loss from one VDA cannot be set off against gain on another VDA or against any other income head. Losses cannot be carried forward to future years. Section 194S imposes 1% TDS on every transaction by an Indian buyer. Section 56(2)(x) taxes receipt of crypto as 'gift' above ₹50,000 in aggregate.

Scam-specific implications: crypto sent to a scammer is treated as a transfer for tax purposes if there's any 'consideration' (e.g. scammer 'sold' you fake tokens) — the 30% tax applies on any 'gain' before the loss. Outright theft (wallet drained) is generally treated as loss of capital asset; adjusted cost reduces, but the loss cannot be set off against other income. Reporting is mandatory — even loss-making transactions must be declared under Schedule VDA. If your overall position is a loss, you can claim TDS refund.

For complex tax situations after a scam, engage a reputable, specialised crypto-tax CA or lawyer. See our crypto law and tax guide.