Paper: GS – III, Subject: Science and Technology, Topic: Emerging technologies, Issue: Regulating India’s digital assets.
Context:
In May 2025, Supreme Court of India called for comprehensive and clear crypto regulation, criticising the current policy as being disconnected from reality.
Key Highlights:
Indian crypto market:
- Ranked top in grassroots crypto adoption for the second year in a row (Chainalysis 2024).
- Indian investors put $6.6 billion into crypto (NASSCOM).
- Potential to create over 8 lakh jobs by 2030.
- India has one of the largest web3 developer cohorts.
Challenges in India’s VDA (Virtual Digital Assets) Regulation:
- Tight Capital Controls vs Decentralised Assets: India’s regulatory framework is rigid and ill-suited for decentralised finance (DeFi). RBI had already warned of crypto risks in 2013 and barred banks in 2018. But the Supreme Court reversed this decision in 2020.
- Inconsistent Tax Measures: India imposes TDS of 1% on VDA transactions over ₹10,000 while 30% capital gains tax with no loss offsetting (Section 115BBH). But the effectiveness of these tax measures has been limited.
- High Offshore Activity: From July 2022 to Dec 2023, over ₹1.03 trillion traded on non-compliant platforms. Only 9% of VDA volume was through domestic exchanges.
- Loss in Tax Revenue: India lost ₹2,488 crore loss due to offshore trading. Uncollected TDS is estimated at ₹6,000 crore (₹60 billion).
- Ineffectiveness of Access Blocks: Blocking crypto exchanges and URLs saw limited success. Use of VPNs, mirror sites, and alternate servers by users made restrictions ineffective.
Way ahead:
- Comprehensive Framework: Current policy gap drives users to non-compliant platforms, hurting revenue and regulation. Thus, regulatory clarity is critical for:
- Investor protection
- Market stability
- National security
- Tax compliance
- Future-Oriented Policy: Move from piecemeal rules to holistic legislation. A balanced and tech-forward policy is essential to harness crypto’s potential while reducing risks.
Conclusion:
Crypto and VDA regulation is essential not only for compliance but also for economic growth, job creation, and technological leadership. India must create a robust legal framework to protect users and integrate crypto into the formal economy.
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