India finds itself at a critical crossroads concerning Virtual Digital Assets (VDAs), navigating a policy landscape that is increasingly out of sync with global trends. While many nations move towards clear regulatory frameworks, India's approach remains ambiguous, treating crypto as a source of revenue without providing corresponding legal safeguards, leading to significant economic and talent flight.
The Paradox of India's Crypto Policy
India's current strategy towards VDAs presents a stark paradox: the government levies substantial taxes on digital asset transactions—a hefty 30% capital gains tax and a 1% TDS—yet simultaneously withholds robust legal recognition and investor protection. This creates an an environment where millions of Indian investors bear a heavy tax burden without the fundamental safeguards against fraud, money laundering, or clear operational guidelines that are typically afforded to other asset classes.
Brain Drain and Economic Loss
This contradictory stance has severe repercussions, actively pushing investment, talent, and trading volume away from India's shores. MP Raghav Chadha highlighted in the Rajya Sabha that unclear regulations are not deterring crypto activity but rather redirecting it to more supportive jurisdictions like Dubai and Singapore. Consequently, an estimated 12 crore Indian investors now utilize foreign platforms, leading to a staggering ₹4.8 lakh crore in trading volume moving overseas, representing nearly 73% of India's total VDA trading. Furthermore, approximately 180 Indian crypto startups have relocated their headquarters abroad, signaling a significant loss of innovation and future tax revenue for the nation.
A Path Forward: Regulation, Not Prohibition
Chadha's proposed solution advocates for a fundamental shift: legalizing VDAs as a recognized asset class and implementing strict, comprehensive domestic regulation. He emphasized that fearing innovation and ignoring crypto is not viable; instead, India must "regulate it strictly but keep it within the country." By establishing a clear domestic regulatory sandbox with strong Anti-Money Laundering (AML) guardrails, India could reverse the brain drain, protect investors, improve compliance, and potentially generate an additional ₹15,000–20,000 crore in annual tax revenue. This approach underscores the principle that "prohibition is not protection, regulation is protection," offering a pathway to harness the opportunities of the digital asset space safely and domestically.
