Regulating India’s virtual digital assets revolution, Pg8

Key Highlights:

• India leads in grassroots crypto adoption for the second year, with $6.6 billion invested by retail investors and 8 lakh jobs projected by 2030.
• The Supreme Court in 2025 criticized the lack of comprehensive crypto regulation, calling bans unrealistic.
• RBI’s 2018 ban on financial institutions dealing with crypto was overturned in 2020; regulatory framework remains unclear.
• Tax policies in 2022 introduced 1% TDS on transactions over ₹10,000 and 30% capital gains tax without loss set-off, but offshore trading evades tax revenue.
• About 91% of VDA trades occur on non-compliant offshore platforms, causing significant revenue loss and regulatory challenges.
• Indian Virtual Asset Service Providers (VASPs) comply with regulations, improving AML/CFT standards and cybersecurity post-2024 hack.
• Global bodies advocate risk-based, harmonized regulation relying on domestic VASPs as intermediaries for better oversight.

Detailed Insights:

• India’s strict capital controls conflict with the decentralized nature of VDAs, complicating regulation.
• RBI expressed early concerns, but prohibition orders were overturned, showing enforcement challenges.
• Tax measures increased transparency but failed to curb offshore trading, leading to significant tax revenue loss.
• Offshore trading platforms remain accessible despite government attempts to block them, due to VPNs and mirror sites.
• The 2024 $230 million hack prompted stronger industry-wide cybersecurity and insurance initiatives.
• A comprehensive legal framework is needed to balance innovation, investor protection, and revenue security.

Scientific/Technical Concepts Involved:

• Virtual Digital Assets (VDA): Digital tokens or cryptocurrencies transferable electronically.
• Virtual Asset Service Providers (VASPs): Entities facilitating VDA transactions, aiding regulatory compliance.
• Tax Deducted at Source (TDS): Tax collection at transaction points to improve compliance.
• AML & CFT: Measures preventing money laundering and terrorism financing.

Mains Mock Question:

Examine the challenges faced by India in regulating virtual digital assets (VDAs) and discuss how a balanced regulatory framework involving Virtual Asset Service Providers (VASPs) can address these issues.