Indian virtual digital assets revolution regulation

India’s Crypto Adoption

• India leads in grassroots crypto adoption for the second consecutive year, according to a ‘Geography of Crypto’ report by Chainalysis (2024).

• A National Association of Software and Service Companies (NASSCOM) report shows Indian retail investors invested $6.6 billion in crypto assets, with the industry predicted to create over eight lakh jobs by 2030.

• India also has one of the largest and fastest-growing web3 developer cohorts.

Regulatory Gaps in India’s Crypto Industry

• India’s strict capital controls and tightly regulated payment systems have made it difficult to reconcile these with the decentralised nature of Virtual Digital Assets (VDAs).

• The Reserve Bank of India (RBI) issued a circular in 2018 barring financial institutions from dealing with VDA-related entities, but this was overturned in 2020.

• The government implemented two key tax policies for VDAs under the Income Tax Act in 2022: a 1% tax deducted at source (TDS) on VDA transactions exceeding ₹10,000 under Section 194S and a 30% capital gains tax under Section 115BBH which disallows loss offsetting.

Role of Virtual Asset Service Providers (VASPs)

• Global standard-setting bodies like the International Monetary Fund, Financial Stability Board, and the Financial Action Task Force converge in favour of comprehensive and risk-based regulation.

• Indian VASP platforms are showing a willingness to comply with regulations and act in good faith, such as strengthening anti-money laundering and counter-terror financing controls.

Need for a Framework

• A balanced, pragmatic, and future-proof regulatory framework is necessary to move beyond the current policy stasis where tax is levied without meaningful regulation.