Strong Crypto Adoption Amid Regulatory Uncertainty
- India ranks first globally for grassroots crypto adoption for the second year, according to Chainalysis (2024).
- Indian retail investors infused $6.6 billion into crypto assets, with the sector poised to create over 800,000 jobs by 2030 (NASSCOM).
- India also hosts one of the largest and fastest-growing cohorts of web3 developers.
Regulatory Environment and Judicial Remarks
- Despite vibrant market growth, India’s crypto regulation remains fragmented and unclear.
- The Supreme Court in May 2025 criticized the lack of clear crypto policy, stating “Banning may be shutting your eyes to ground reality,” underscoring the disconnect between market realities and policy.
Challenges with Regulatory and Monetary Controls
- RBI expressed early concerns (since 2013) over crypto risks due to lack of central bank authorization.
- A 2018 RBI circular banning financial institutions from crypto dealings was overturned by the Supreme Court in 2020.
- The government introduced stringent tax policies in 2022:
- 1% TDS on VDA transactions above ₹10,000 (Section 194S).
- 30% capital gains tax without loss offsetting (Section 115BBH).
- These taxes aimed to improve transparency and limit speculation but have had limited success.
Continued Offshore Trading and Tax Leakage
- From July 2022 to December 2023, over ₹1.03 trillion of VDAs were traded on non-compliant (mostly offshore) platforms.
- Only 9% of VDAs were held on domestic exchanges, resulting in an estimated ₹2,488 crore loss in tax revenue.
- Between December 2023 and October 2024, ₹2.63 trillion was traded offshore, with uncollected TDS exceeding ₹60 billion.
- Efforts to block non-compliant platforms (e.g., URL blocking) failed as users circumvented restrictions via VPNs, mirrors, and platform migration.
Importance of Virtual Asset Service Providers (VASPs)
- Global bodies (IMF, FSB, FATF) advocate for comprehensive, risk-based crypto regulation harmonized with international norms, relying on compliant domestic intermediaries (VASPs).
- VASPs act as regulatory bridges, enabling oversight, enforcement, and risk mitigation.
- India’s current policies push users offshore, eroding regulatory control and tax compliance.
- Indian VASPs are rapidly maturing, collaborating effectively with the Financial Intelligence Unit-India to strengthen AML/CFT controls.
- Post the $230 million crypto hack in 2024, Indian exchanges enhanced cybersecurity, established insurance funds, and implemented industry-wide security standards.
