India appears to be moving away from introducing specific legislation to regulate digital assets, opting for a limited oversight approach. A government document indicates concerns that integrating digital assets into the country’s mainstream financial infrastructure could pose systemic threats, according to a Reuters report.
The document reflects the stance of the Reserve Bank of India (RBI), which maintains that effectively mitigating the dangers of digital assets through regulation is highly challenging. It warns that establishing a formal regulatory framework might inadvertently confer legitimacy upon the ‘crypto’ sector, potentially leading it to gain systemic importance.
According to the document, Indian investors hold approximately $4.5 billion in digital assets. Despite this investment level, the overall use of these assets remains limited and does not yet pose a systemic threat to the financial system.
While a complete prohibition could address the severe risks posed by highly speculative digital assets, the document notes that such a ban would fall short in preventing peer-to-peer transactions or trades occurring on decentralized platforms. Although the government drafted a bill in 2021 aimed at banning private ‘cryptocurrencies,’ it ultimately did not pursue the legislation.
An in-depth discussion paper on digital assets is also being prepared for release, incorporating perspectives from key international organizations such as the International Monetary Fund (IMF) and the Financial Stability Board (FSB). This move highlights the nation’s growing interest in establishing a well-defined regulatory framework in response to the increasing global acceptance of digital currencies. The timing of the paper aligns with evolving global trends, particularly the United States’ more supportive stance on digital assets, which has gained momentum amid rising endorsement during Donald Trump’s presidency.
During its 2023 G20 presidency, India advocated for a coordinated international regulatory framework for digital assets. A policy paper to outline India’s official stance on crypto was expected in 2024, but its release was postponed. Currently, global digital asset exchanges can operate in the country if they register with a designated government agency responsible for monitoring anti-money laundering (AML) compliance. However, stringent tax policies on digital assets-related profits have been implemented, discouraging speculative investment.
The RBI has consistently expressed concern about the risks associated with digital asset transactions. The existing ambiguity in regulations has, in fact, limited digital assets’ penetration into the regulated financial space. Taxation and other current legal measures are designed to suppress speculative trading and penalize fraudulent or illegal activities linked to digital assets.
India’s hot and cold relationship with digital assets
India has implemented one of the most stringent tax regimes for digital asset transactions, imposing a flat 30% tax on all digital asset-related profits without allowing any deductions for losses. In addition, a 1% tax deducted at source (TDS) is applied to transactions exceeding ₹10,000 (approximately $113). India also imposes an 18% goods and services tax (GST) on trading fees. According to research by the Esya Centre, an Indian policy think tank, these measures could result in an estimated $1.2 trillion reduction in trading volumes on domestic digital asset exchanges.
“India’s position as the global leader in crypto adoption, despite operating under regulatory limbo and facing punishing taxation, underscores the optimism and aspiration of structural and societal forces that outpace policy restrictions,” Raj Kapoor, founder of India Blockchain Alliance (IBA), told CoinGeek.
“With the world’s largest youth population, rapid smartphone penetration, and deep familiarity with digital payments through systems like Unified Payments Interface (UPI), India has become fertile ground for digital assets. Crypto, in this context, is less a speculative fad and more a natural extension of a society already primed for digital money,” Kapoor pointed out.
Industry players in India have consistently urged the government to create fairer conditions for virtual digital assets (VDAs). Their proposals include lowering the TDS rate from 1% to 0.01%, allowing offsetting and carry-forward of losses, and classifying profits from digital assets in the same category as other capital gains. However, these appeals have largely been ignored.
In 2024, the digital asset exchange OKX, headquartered in Seychelles, ceased operations in India, attributing its exit to ongoing regulatory challenges. Meanwhile, local exchanges have increasingly aligned themselves with evolving compliance requirements.
Although efforts to regulate the digital asset sector continue, Finance Minister Nirmala Sitharaman reiterated in March 2024 that digital currencies would not be recognized as legal tender in India. India has, however, embraced blockchain, the underlying technology of digital assets. Several Indian provincial governments use blockchain’s immutability to store land records and educational certificates.
“For millions of Indians, crypto has also emerged as a ‘third asset class’ alongside equities and gold, offering aspirational wealth creation in a nation hungry for new financial opportunities. In this sense, adoption is being driven not by regulatory blessing but by economic necessity and opportunity,” Kapoor added.
Back to the top ↑
Need to monitor stablecoin developments
Given the diversity in how nations approach digital asset regulation, the document emphasizes the complexity of defining a consistent or unified national policy, according to the Reuters report. It also highlights the potential implications of the U.S. embracing stablecoins pegged to the dollar, suggesting that such a move could influence both developed and developing economies.
The document underscores the need for the Indian government to closely monitor stablecoin developments, as most are tied to the U.S. dollar. Although these coins are designed to maintain a stable value, they remain susceptible to market volatility and liquidity issues, which could disrupt financial markets.
Moreover, the widespread adoption of stablecoins might lead to fragmentation in national payment systems. In India’s case, this could undermine the UPI, a cornerstone of the country’s digital payment ecosystem, the document said.
UPI has been a tough competitor for the central bank digital currency (CBDC), or the e-rupee. It’s been nearly three years since the RBI introduced India’s blockchain-based digital rupee. But even after several trials, India’s retail CBDC struggles to find strong adoption in the country’s burgeoning digital payment landscape. This is primarily because RBI has been simultaneously pushing to popularize India’s flagship UPI, a global success story and an example of effective Digital Public Infrastructure (DPI).
Back to the top ↑
Watch: What’s going on with blockchain technology in India?
title=”YouTube video player” frameborder=”0″ allow=”accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share” referrerpolicy=”strict-origin-when-cross-origin” allowfullscreen=””>
Source: https://coingeek.com/india-sidesteps-crypto-law-opts-for-limited-oversight/
