India’s Tax Authority Takes Bold Step: Formal Engagement with Crypto Industry Signals Regulatory Shift
India’s tax authority just dropped a bombshell—they’re officially at the table with crypto heavyweights. No more shadowboxing; this is a full-on regulatory tango.
Why now? The subcontinent’s $2 trillion economy can’t ignore digital assets anymore—not when 15% of millennials already hold some form of crypto. The taxman wants his cut before the next bull run.
Behind the scenes: Bureaucrats are scrambling to decode DeFi while exchanges prep compliance teams. Expect ‘creative’ accounting as traders exploit loopholes—old finance never dies, it just gets tokenized.
Bottom line: When governments engage, volatility follows. Buckle up for a wild ride where tax codes and blockchain collide.
India’s tax authority formally engages the crypto industry
This is India’s first concrete step towards reassessing its approach to digital assets. So far, the country has imposed heavy taxation on the sector and beset it with regulatory uncertainty. The Reserve Bank of India (RBI) has also been skeptical of cryptocurrencies.
The CBDT’s questions include whether a dedicated VDA law should be framed, and if so, which agency should be responsible for overseeing it. Options mentioned include the Securities and Exchange Board of India (SEBI), the RBI, the Ministry of Electronics and Information Technology (MeitY), or the Financial Intelligence Unit (FIU-IND).
Crypto platforms have also been asked whether the current 1% tax deducted at source (TDS) on every trade is too high, what the ideal rate might be, and whether traders should be allowed to set off VDA losses in order to create a more equitable tax framework.
Currently, income from crypto gains is taxed at a flat rate of 30%, which is far higher than capital gains on equities, while losses from trades cannot be offset against profits. This combination has squeezed liquidity in the market and left many traders looking abroad in countries like Dubai for more favorable conditions. Several banks are also reluctant to provide accounts linked to crypto trading.
Regulatory clarity may be on the way
Exchanges have been asked to compare India’s tax and compliance regime with other major jurisdictions and assess how the flat 30% tax and TDS rules have impacted market activity, liquidity, and user behavior.
One of the most pressing concerns relates to the practical implementation of TDS. The CBDT has asked platforms to detail challenges in identifying counterparties’ residency status, valuing VDAs for taxation purposes, and reporting trades to the income tax department’s processing system. It also asked whether different treatment should be applied to market makers, retail traders, and institutional investors.
Over the past two years, some Indian exchanges have begun offering products such as crypto futures and, more recently, options, where the TDS burden is lower. The CBDT’s questionnaire raises the issue of whether sufficient legal clarity exists around such derivatives and cross-border transactions, and whether the definition of “virtual digital assets” itself needs refinement.
Platforms have been asked whether they are prepared for the Organisation for Economic Co-operation and Development’s (OECD) new Crypto-Asset Reporting Framework (CARF), which aims to standardize reporting obligations across borders to prevent tax evasion and money laundering. India has been a vocal participant in global forums like the G20, where it has argued that regulation of digital assets must be pursued collectively rather than unilaterally.
According to Purushottam Anand, an advocate and the founder of the blockchain law firm Crypto Legal, India is likely to MOVE toward a comprehensive regulatory framework in the coming year. He used the G20 synthesis paper, the Finance Track communique, and the recent decision of the Parliamentary Standing Committee on Finance to examine VDAs in detail as indicators that the government may soon introduce legislation.
“India has consistently emphasised that regulation or banning can be effective only with significant international collaboration,” he noted.
Globally, most major economies have opted for regulatory regimes rather than outright bans on cryptocurrencies. China remains the only major economy to maintain a blanket prohibition.
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