Syllabus :GS3/Economy
In News
- India leads in grassroots crypto adoption, with $6.6 billion invested by retail investors and 800,000 jobs expected by 2030, but faces unclear and challenging Virtual Digital Assets regulations.
What are Virtual Digital Assets?
- They are electronically stored, transferable, or tradable digital representations of value. They include:
- Cryptocurrencies: Digital or virtual currencies that are secured through cryptographic techniques, making them highly resistant to counterfeiting.
- NFTs (Non-Fungible Tokens): Unique digital assets, recorded on a blockchain, and tradable for money, cryptocurrencies, or other NFTs.
- VDAs can be used for payments, investments, or as representations of real-world items such as artwork, real estate, personal identities, or property rights.
Legal framework
- India’s Income Tax Bill, 2025 introduces a clear legal framework classifying Virtual Digital Assets (VDAs)—including cryptocurrencies and Non-Fungible Tokens (NFTs)—as property and capital assets for the first time.
- This aligns India with global practices in countries like the U.K., U.S., and Australia.
- Under the bill, gains from the sale or transfer of VDAs will be taxed under capital gains provisions, similar to real estate and stocks.
- This move ensures VDAs are taxed transparently and reduces their potential misuse as unregulated financial instruments.
- In March 2023, the government brought VDAs under the ambit of the ‘Prevention of Money Laundering Act, 2002 (PMLA)’, ensuring that transactions involving these assets fall within its scope.
| Do you know? – Global bodies like the IMF and FATF advocate for risk-based, harmonized regulation relying on compliant domestic intermediaries called Virtual Asset Service Providers (VASPs). – These VASPs help align the crypto industry with laws, improve oversight, and provide regulatory insights. – Indian VASPs are maturing rapidly, cooperating with authorities to strengthen anti-money laundering and counter-terrorism efforts. – Following a major $230 million hack in 2024, Indian exchanges enhanced cybersecurity, created insurance funds, and established industry-wide guidelines to protect users and assets. |
Challenges
- India’s strict capital controls and regulated payment systems clash with the decentralized nature of Virtual Digital Assets (VDAs).
- The Reserve Bank of India (RBI) raised concerns early on, banning financial institutions from crypto dealings in 2018—a ban overturned by courts in 2020.
- The government then introduced taxation measures in 2022, including a 1% TDS on VDA transactions above ₹10,000 and a 30% capital gains tax without loss offsetting.
- Despite these efforts, most trading shifted offshore, resulting in significant tax revenue losses (over ₹2,488 crore) and high volumes on non-compliant platforms.
- Attempts to block these platforms have been largely ineffective, as users circumvent restrictions using VPNs and alternative access methods.
Supreme Court’s observations
- In May 2025, the Supreme Court highlighted the lack of comprehensive crypto regulation, noting that banning crypto ignores the market’s reality, underscoring the disconnect between policy and the vibrant crypto ecosystem.
Suggestions and Way Forward
- India is rapidly emerging as a global leader in the adoption of Virtual Digital Assets (VDAs), including cryptocurrencies and NFTs.
- And to harness the full potential of VDAs, India needs a balanced and forward-looking regulatory framework.
- Such a framework would support innovation, protect investors, and ensure tax compliance, ultimately securing India’s position as a leader in the digital asset revolution.
Source :TH
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