India eyes clearer crypto tax rules with CBDT move
India’s cryptocurrency sector has long faced uncertainty due to high taxation, ambiguous regulations, and limited banking support. However, the Central Board of Direct Taxes (CBDT) has now initiated formal discussions with crypto platforms to address these concerns. This development may indicate a shift in how digital assets are regulated in the country.
Role and responsibilities of the CBDT
The CBDT is the top authority in India for the administration of direct taxes. It is responsible for formulating policies, enforcing tax laws, and collecting revenue. One of its duties is to ensure that emerging industries, such as cryptocurrencies, are integrated into the tax framework. Although the CBDT has issued guidelines regarding the taxation of virtual digital assets (VDAs), it has not previously engaged in detailed consultations with the industry.
The recent questionnaire initiative
In early August 2025, the CBDT circulated a questionnaire to cryptocurrency exchanges, seeking feedback on tax structures, regulatory clarity, and compliance-related issues, according to local media reports. The CBDT has proposed that various regulatory bodies such as the Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Ministry of Electronics and Information Technology (MeitY), and Financial Intelligence Unit – India (FIU-IND)—oversee VDAs. Topics covered in the questionnaire include the reduction of TDS rates, permission to offset losses, and the need for clearer sector-specific operational standards.
Crypto platforms have advocated for a reduction in the 1 percent TDS rate, suggesting figures as low as 0.01 percent or 0.05 percent to help restore liquidity without significantly impacting tax revenue. There is also a call for allowing loss offsets, which would align crypto taxation with global norms.
Current crypto taxation landscape in India
India’s current cryptocurrency taxation regime poses several challenges for platforms and traders. Profits from cryptocurrency transactions are taxed at a flat rate of 30 percent, similar to the taxation of lottery winnings, rather than being treated as capital gains. Additionally, each trade is subject to a 1 percent Tax Deducted at Source (TDS), which has significantly reduced exchange liquidity and discouraged frequent trading. Unlike other asset classes, there is no provision for offsetting losses against gains, resulting in an uneven playing field.
Due to declining trading volumes caused by high taxes, Indian cryptocurrency exchanges are facing liquidity issues. Many traders have migrated to countries such as Dubai, which offer more favourable tax regimes and clearer regulations. Further complicating operations is the reluctance of some banks to engage with cryptocurrency-related businesses.
Regulatory clarity on derivatives and cross-border transactions
Some Indian exchanges have launched crypto derivatives products, which currently attract lower TDS rates. Nevertheless, there remains legal uncertainty regarding whether these instruments are adequately covered by existing laws. To avoid overlaps with other asset classes, industry leaders have also called for a more precise definition of “Virtual Digital Assets.”
India is actively participating in G20 discussions on coordinated crypto regulation. The Crypto-Asset Reporting Framework (CARF) aims to enhance transparency, prevent tax evasion, and standardise cross-border reporting.
Possible agencies for VDA oversight
Several regulatory bodies are being considered for overseeing Virtual Digital Assets (VDAs) in India. SEBI is deemed suitable for handling cryptocurrencies as financial securities to protect investors. The RBI could oversee payment system integration and maintain monetary stability.
MeitY is best positioned to manage technology infrastructure and cybersecurity concerns. Meanwhile, FIU-IND would focus on anti-money laundering efforts and monitoring suspicious transactions.
Industry’s readiness for change
It is challenging for cryptocurrency exchanges to track users’ locations and ensure accurate trade reporting. However, most major platforms are technologically equipped to comply with CARF, provided they receive clear guidelines. Most countries favour regulation over prohibition, as it encourages innovation while curbing illicit activities. A well-defined legislative framework could attract investment, generate employment, and position India as a hub for Web3 development.
A revised law could introduce lower TDS rates and permit loss offsets to boost participation. It may also establish standardised operational guidelines, including KYC norms and reporting standards, along with clear rules for cross-border crypto transactions aligned with CARF.
