The Central Board of Direct Taxes (CBDT), India's apex direct tax authority, has opened discussions with cryptocurrency stakeholders on whether India requires a comprehensive Virtual Digital Assets (VDA) legislation and which agency should oversee it. The move has triggered optimism in the crypto industry, which has long struggled under stringent taxation norms, regulatory ambiguity, and banking restrictions.
According to a report, CBDT has circulated detailed queries to exchanges and industry players, seeking responses by mid-August. The questions cover a wide range of issues, including:
- Whether the current VDA framework is sufficient or if a dedicated VDA law is required and which regulator (SEBI, RBI, MeitY, FIU-IND) should administer it.
- The scale of offshore migration of trading volumes and the jurisdictions attracting Indian investors, such as Dubai.
- The impact of the 30% flat tax on crypto gains and the prohibition on loss set-off or carry-forward.
- Challenges in implementing the 1% TDS rule, particularly for peer-to-peer transactions and counterparty verification.
- Suggestions on differentiated TDS treatment for market makers, retail, and institutional trades.
- Ensuring a level playing field between domestic and offshore exchanges, particularly regarding tax compliance.
Currently, Indian crypto traders pay a 30% tax on profits, unlike the lower capital gains tax for equities. In addition, a 1% TDS applies on transactions, and losses cannot be offset against gains. These stringent provisions have pushed many investors and companies to shift operations to crypto-friendly hubs like Dubai, which is positioning itself as a global digital asset centre.
Industry experts note that India may be reconsidering its approach, given the rapid adoption of digital assets in developed economies and their inclusion in US mutual funds. A recent Parliamentary Standing Committee on Finance also selected VDAs for detailed review this year.
"India has consistently maintained that regulation, not prohibition, is the way forward, provided there is international collaboration," an industry analyst said. While China remains the only major economy with a blanket ban, most G20 nations favour regulation over prohibition.
CBDT is also examining crypto derivatives, cross-border transactions and alignment with the OECD's Crypto-Asset Reporting Framework (CARF) to tackle tax evasion and money laundering.
If a comprehensive VDA law emerges, it could reshape India's crypto landscape by addressing compliance gaps, reducing offshore migration, and offering long-awaited clarity to traders and exchanges.
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