02 Jun 2025 : Regulating India’s virtual digital assets revolution

 Editorial 1: ​​​Regulating India’s virtual digital assets revolution

Context

There is a big difference between what is real and what policies say, causing problems for regulators and market participants.

Introduction

India remains the top country for grassroots crypto adoption for the second year in a row, according to the ‘Geography of Crypto’ report by Chainalysis (2024). A report by the National Association of Software and Service Companies (NASSCOM) shows that Indian retail investors invested $6.6 billion in crypto assets and expects the industry to create over eight lakh jobs by 2030. India also has one of the largest and fastest-growing groups of web3 developers.

Crypto’s Vibrancy Amid Regulatory Challenges in India

• Surprising Growth: Despite the rocky journey of crypto (called Virtual Digital Assets - VDA) in India’s regulatory and policy environment, the market remains vibrant.
• Supreme Court Observation (May 2025): The Supreme Court of India raised concerns about the lack of clear and complete crypto regulation, stating:
  “Banning may be shutting your eyes to ground reality.”
• Key Issue: This highlights the gap between the reality of VDAs and the policies around them, causing big challenges for both regulators and market participants.

India’s Challenges with Decentralised Virtual Digital Assets (VDAs)

Key Issues with Regulatory Framework

Government’s Tax Measures on VDAs (2022)

Impact of Offshore Trading & Regulatory Evasion

• From July 2022 to Dec 2023, Indians traded over ₹1.03 trillion on non-compliant offshore platforms.
• Only 9% of the total ₹1.12 trillion in VDAs was held on domestic exchanges.
• Offshore trading caused a loss of ₹2,488 crore in uncollected tax revenue.
• Between Dec 2023 and Oct 2024, offshore trades reached ₹2.63 trillion.
• Estimated uncollected TDS from offshore trades is over ₹60 billion since July 2022.
• Nine blocked exchanges make up more than 60% of this offshore trade volume.

Attempts to Block Non-Compliant Platforms

Global Guidelines vs. India’s Current VDA Policy

Global Standards on VDA Regulation

• These frameworks depend on domestic, compliant intermediaries known as Virtual Asset Service Providers (VASPs).
• VASPs act as bridges between regulators and the VDA ecosystem, helping enforce laws, increase transparency, and provide feedback on real-world issues.

India’s Policy Challenges

• India’s current policies push VDA users to offshore, non-compliant platforms.
• This weakens India’s control over risks and causes loss of tax revenue.

Indian VASPs: Growing Stronger and More Responsible

Need for a framework

• VASPs play a crucial role in creating a safer digital asset ecosystem.
• Along with supporting national value creation and economic growth, VASPs offer a better and more reliable way for funds to flow under Indian regulatory supervision.
• The current situation—where tax is imposed without clear regulation—needs to change.
• India requires a balanced, practical, and future-ready regulatory framework.
• Decisive action is needed to establish comprehensive laws that support the crypto industry while reducing risks.

Conclusion

India’s booming crypto market highlights the urgent need for clear, balanced regulation. While grassroots adoption and VASPs drive growth and innovation, current policies push users offshore, risking tax loss and weak oversight. To protect investors and the economy, India must enact pragmatic, future-ready laws that support industry growth while managing risks effectively.