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India Enforces Tax and Compliance Rules on Digital Assets Amid Regulatory Uncertainty
India has implemented stringent tax policies and mandatory compliance requirements for digital asset service providers despite lacking a comprehensive regulatory framework. This contradictory approach has left both investors and service providers grappling with uncertainty in a burgeoning market.
No Regulatory Clarity, Yet Compliance is Mandatory
The regulatory void surrounding digital assets in India continues to frustrate stakeholders. On October 23, as reported by Coinpedia, Pankaj Chaudhary, India's Minister of State for Finance, addressed the ambiguous status of digital asset regulation in a written reply to Parliament. He stated, “Currently, there are no regulations governing digital or virtual assets in India. It would be premature to comment on the legality of any specific platform under these circumstances.”
Despite this regulatory uncertainty, the Financial Intelligence Unit-India (FIU-IND) mandates that all Virtual Asset Service Providers (VASPs)—both domestic and international—register under the Prevention of Money Laundering Act (PMLA). Platforms that fail to comply face inclusion in FIU’s public non-compliance registry, a move that could severely impact their reputation and credibility.
Chaudhary further clarified the government's tax stand, stating, “A 1% Tax Deducted at Source (TDS) applies to all taxable digital asset transactions, including those executed on foreign platforms.” These policies are enforced uniformly, whether or not a robust legal framework exists.
Indian Investors Confront Steep Tax Obligations: 30% Gains Tax + 1% TDS
Crypto taxation in India is among the toughest globally. Investors face a flat 30% tax on all gains from digital asset transactions without the option to offset losses—a regulation that critics consider excessively punitive. On top of this, every transaction triggers a separate 1% TDS, irrespective of profit or loss, adding an additional layer of financial strain.
To further complicate trading, Goods and Services Tax (GST) applies to transaction fees, squeezing profitability even further. These compounded taxes have made crypto investments a high-stakes gamble for both retail and institutional participants. Many in the market argue that this framework penalizes investors even when they suffer losses, deterring wider adoption.
Erosion of Trust in Domestic Crypto Exchanges
India’s domestic exchanges are struggling to retain investor confidence. While promoting adherence to legal requirements and implementing advanced security measures, operational lapses and transparency concerns have alienated users.
Issues such as withdrawal delays, unresponsive customer support, and opaque governance have sparked skepticism among traders. Security breaches have only compounded the problem. WazirX, one of India’s largest exchanges, experienced a cyberattack that led to losses of $234 million (approximately 322.1 billion KRW). Similarly, CoinDCX reported a hacking incident earlier this year, resulting in $44 million (approximately 60.6 billion KRW) in losses. These vulnerabilities have shaken trust and heightened risk perception among investors in the Indian crypto landscape.
Industry Takes Charge: The COINS Framework as a Regulatory Proposal
Amid growing challenges, the blockchain community in India is stepping up to address regulatory gaps. A joint initiative by Hashed Emergent, a blockchain investment firm, and BlackDot, a policy think tank, has introduced the COINS Framework, a transformative model for digital asset governance.
COINS advocates for industry-led self-regulation, shifting away from government-imposed directives. Central to the framework are principles such as self-custody of assets, robust privacy protections, and unrestricted technological innovation. Additionally, the framework envisions establishing an independent regulatory body, tentatively named the “Crypto Asset Regulatory Authority (CARA).”
While the COINS Framework remains outside formal governmental processes, it has gained recognition as a progressive blueprint for the future of crypto regulation in India.
Conclusion: India's Balancing Act on Digital Assets
India’s approach to digital assets is marked by contradictions: enforcement of rigid tax and compliance measures without a supporting regulatory structure. As investors wrestle with uncertainty, industry leaders and policymakers must engage more collaboratively to create a fair, inclusive, and secure digital asset ecosystem. Until a clear framework emerges, initiatives like the COINS Framework may serve as critical stepping stones toward sustainable growth in the sector.
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