Whalesbook
India Panel Urges Continued Crypto Tax Amidst Capital Flight
A parliamentary committee in India has flagged major concerns over substantial investments in virtual digital assets. The panel strongly recommends keeping existing tax measures on these transactions in place.
Key points from the committee's analysis include:
- Significant Investment and Outflow: Billions of rupees are being invested in virtual digital assets, with a notable portion of this capital leaving India. This outflow reinforces the panel's view that continued taxation is necessary.
- Policy Grey Area: India currently lacks a specific law for virtual digital assets. This creates a legal grey area, even though tax rules imposed since April 1, 2022, include a 30% income tax on gains and a 1% Tax Deducted at Source (TDS) on transactions exceeding certain limits.
Reviewing Global Crypto Regulations
The committee is examining regulatory frameworks from countries like the US and EU. It also notes contrasting approaches such as China's ban and Japan and Brazil's efforts to regulate via existing laws. The Reserve Bank of India (RBI) has reportedly expressed reservations about regulating or sanctioning virtual digital assets domestically, adding to policy complexities.
Stakeholder Views and Tax Structure
Discussions have included various stakeholders from the virtual digital asset sector and government departments. Some committee members have questioned the 30% tax rate without a comprehensive policy. India's current tax regime imposes a flat 30% income tax (plus cess and surcharges) on virtual digital asset income, akin to speculative winnings. Furthermore, a 1% TDS applies to cryptocurrency transactions above certain annual thresholds, and a 1% TDS is in place for most transactions over ₹50,000. Gifts of virtual digital assets are also taxed for the recipient.
Capital Drain and Industry Pushback
The substantial capital outflow, estimated in the thousands of crores, is a significant economic concern, complicating oversight and tax collection. Reports suggest over 72% of India's crypto trading volume shifted to offshore platforms in FY25, largely due to the high tax burden and transaction levies. This has led to lower liquidity on domestic exchanges and worries about regulatory evasion.
While the government maintains its strict tax policies, industry participants have proposed lowering the TDS rate to 0.1% to encourage domestic trading and stem capital outflow. The Income Tax Department is enhancing its monitoring capabilities, with new powers to access digital activities and assets from April 2026. Despite these challenges, India's crypto market showed resilience, with transactions growing 41% year-on-year to ₹51,180 crore in FY 2024-25.