Good News: India Set to Implement Smarter Crypto Regulations and Tax Relief

India Plans Balanced Crypto Law as CBDT Reviews 1% TDS and Loss Set-Off Rules

In a move that could reshape the future of cryptocurrency trading in India, the Central Board of Direct Taxes (CBDT) has initiated consultations with major crypto exchanges in the country. The board is seeking feedback on a set of key proposals aimed at easing the burden on traders and creating a more balanced framework for Virtual Digital Assets (VDAs).

The development is being widely viewed as one of the first concrete signs that the Indian government may be ready to reconsider its hardline stance on crypto taxation and align itself more closely with global regulatory practices.

CBDT Opens Dialogue with Crypto Exchanges

According to officials familiar with the matter, the CBDT has formally contacted crypto exchanges to gather their inputs on several high-impact areas of regulation. Among the topics under review are:

• The possibility of introducing a dedicated legal framework for Virtual Digital Assets.

• A reassessment of the controversial 1% Tax Deducted at Source (TDS) on all crypto trades.

• Allowing traders to offset losses against gains, a practice currently prohibited under Indian tax law.

• Strategies to curb the migration of users and trading volumes to overseas platforms.

This engagement reflects a more cooperative stance by the government, which until now had largely imposed regulations without consultation. The move also addresses concerns highlighted in a 2023 report by the Esya Centre, which estimated that between 3 and 5 million Indian traders shifted to offshore platforms after the TDS rule came into effect, causing significant capital flight.

Why Crypto Tax Relief Could Be a Game Changer

Since the Union Budget of 2022, the Indian government has imposed a flat 30% tax on crypto gains and mandated a 1% TDS on every trade, regardless of profit or loss. While these measures brought clarity on taxation, they also imposed a heavy compliance burden.

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Traders were unable to offset losses against profits, meaning that even a series of losing trades still carried a tax liability. Meanwhile, the 1% TDS on every transaction eroded liquidity, as it locked up working capital and discouraged active trading.

For many retail investors, this created an uneven playing field. Unable to recover losses or manage tax obligations efficiently, they moved their activity to international exchanges that offered better incentives and fewer restrictions.

Industry insiders argue that reducing the TDS and allowing loss set-offs would revive domestic trading volumes, help retain users within the Indian ecosystem, and encourage innovation in blockchain technology and fintech services.

India’s Complicated Crypto Relationship

India has long had a complicated relationship with digital assets. The Reserve Bank of India (RBI) has consistently warned against treating cryptocurrencies as legal tender, highlighting risks related to money laundering, fraud, and financial instability.

Despite these warnings, India remains one of the largest markets for cryptocurrency adoption. According to a 2022 UNCTAD report, more than 100 million Indians — approximately 7.3% of the population — own digital assets, placing the country among the top crypto markets worldwide.

Yet, the absence of a dedicated legal framework has created uncertainty for both investors and businesses. While the government has not banned crypto outright — unlike China — it has also not given it official recognition as money. This regulatory gray zone has limited mainstream adoption while driving users to global platforms.

A Global Perspective: Learning from the West

India’s latest consultation mirrors steps taken by global powers such as the United States and the European Union. Both regions have developed detailed frameworks governing taxation, consumer protection, and exchange registration, providing clarity for investors while holding platforms accountable.

For example, the European Union’s Markets in Crypto-Assets Regulation (MiCA) establishes clear rules for issuers and service providers, setting a high bar for compliance while protecting consumer rights. The U.S., though fragmented in its approach, has already advanced discussions on stablecoin regulation and exchange oversight.

By seeking feedback from exchanges, India signals that it may be ready to adopt a more pragmatic approach — one that balances innovation with oversight, rather than stifling the industry through excessive taxation.

The Stakes for India’s Economy

The implications of CBDT’s review extend beyond the crypto industry. If India manages to strike the right regulatory balance, it could position itself as a global hub for blockchain innovation, attracting capital, startups, and institutional investment.

Conversely, if the current rules persist, India risks pushing its tech-savvy investor base and emerging blockchain companies abroad, leading to capital outflows and a loss of competitive edge in the global digital economy.

Industry stakeholders argue that crypto and blockchain technologies have the potential to generate jobs, drive financial inclusion, and integrate India more deeply into the global financial system. Relaxing tax burdens and clarifying regulations could help unlock this potential.

Voices from the Industry

Market analysts and industry leaders have cautiously welcomed the CBDT’s outreach.

“This is the first time we’re seeing meaningful engagement from the government,” said one senior executive at a major Indian crypto exchange. “If they ease the 1% TDS and allow loss offsets, it will be a game changer. Domestic volumes will recover, and investors will have more confidence to operate within India rather than going offshore.”

Others remain skeptical, warning that regulatory delays could cost India valuable time in an industry that evolves rapidly. “The world is moving fast,” said a blockchain entrepreneur based in Bengaluru. “We need clarity now, not in five years. Otherwise, India will miss the next wave of digital finance.”

A Shift Toward Maturity

The CBDT’s move is being hailed as a potential turning point in India’s approach to cryptocurrency. For the first time, policymakers appear to be moving from reactive restrictions to proactive engagement.

If successful, this could signal the beginning of a more mature, inclusive, and balanced regulatory environment — one that ensures investor protection while fostering innovation.

Conclusion

India stands at a crossroads in its crypto journey. With over 100 million users already invested in digital assets, the country cannot afford to ignore the industry. By reassessing the 1% TDS, allowing loss set-offs, and consulting directly with exchanges, the government has taken the first steps toward building a fairer and more sustainable framework.

The coming months will be crucial in determining whether India can align its crypto policies with global standards, prevent capital flight, and transform itself into a hub for digital asset innovation.

Writer @Erlin

Erlin is an experienced crypto writer who loves to explore the intersection of blockchain technology and financial markets. She regularly provides insights into the latest trends and innovations in the digital currency space.

 

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