India’s Income Tax Department is investigating a growing number of alleged instances of misuse of client funds by Indian cryptocurrency exchanges. The department has discovered that these platforms are exploiting users’ deposited cryptocurrencies for their own purposes, without sharing profits or disclosing the extent of their use. According to a report by The Times of India, exchange terms and conditions often permit them to lend and trade crypto holdings. While users are limited to selling their assets, exchanges frequently use client funds for activities such as lending and staking, without proper disclosure. This practice, known as rehypothecation and commingling, poses a significant risk to investors. FTX’s 2022 bankruptcy is cited as a precedent for these risky practices. Despite existing concerns, the lack of clear legal frameworks makes it challenging to hold exchanges accountable.