Regulatory haze: Bank services, govt taxes, but no governing law, Pg11

Key Highlights:

• The Indian government taxes cryptocurrency profits and transactions and allows banks to service crypto exchanges, but lacks a comprehensive legal framework for the industry.
• The Supreme Court has urged the government to formulate a clear policy on virtual currency, noting the risks of policy uncertainty.
• Since March 2020, the number of crypto investors in India has grown from 6 million to 119 million, with the market projected to exceed $15 billion by 2035.
• A flat 30% tax on income from Virtual Digital Assets (VDAs) and a 1% Tax Deducted at Source (TDS) on crypto transactions were introduced in Budget 2022.
• Daily trading volume on crypto exchanges crashed 97% after the 1% TDS was implemented, leading to approximately 90% of total trade volumes shifting to offshore platforms.
• The Financial Intelligence Unit (FIU-IND) has imposed fines of over Rs 58 crore on crypto exchanges like Binance, ProBit, and KuCoin for not adhering to anti-money laundering laws between 2024 and 2025.

Detailed Insights:

• The absence of a legislative framework for VDAs has led crypto exchanges to relocate from India, exposing approximately 120 million investors to potential frauds in an unregulated market.
• The Supreme Court overturned a 2018 RBI decision that had banned banks from servicing crypto exchanges, which the court deemed unconstitutional in March 2020.
• Despite the lack of specific legislation, the government is using existing regulations like the Prevention of Money Laundering Act (PMLA) to oversee cryptocurrencies, requiring exchanges to register with the FIU, conduct KYC verification, and report suspicious activity.
• The government's reluctance to introduce a separate law for VDAs stems from concerns that it could legitimize the sector, attract more funds, and increase systemic risks in the financial sector.
• The Bharat Web3 Association has drafted a VDA Regulatory Authority Bill to provide policy certainty, highlighting that clear and consistent policies are essential for the sector's growth.
• India received an estimated $258.9 billion in crypto assets between 2022 and 2023, which increased to $338 billion in the first half of 2025, making it the highest in the Asia-Pacific region.

Key Concepts Involved:

• Virtual Digital Assets (VDAs): Digital representations of value that can be digitally traded or transferred and can be used for payment or investment purposes.
• Tax Deducted at Source (TDS): A mechanism where a percentage of payment is deducted as tax at the source of income.
• Know Your Customer (KYC): The process of verifying the identity of clients to comply with anti-money laundering laws.
• Prevention of Money Laundering Act (PMLA): An act to prevent money-laundering and to provide for confiscation of property derived from money-laundering.