India is facing a paradox: it taxes cryptocurrencies as legal but lacks a clear legal framework, causing investors and businesses to relocate their operations overseas.
While many countries are moving from skepticism to concrete plans for digital assets, policy on Virtual Digital Assets (VDA) in India remains inconsistent. High taxes coupled with limited investor protection and insufficiently specialized anti-money laundering mechanisms are increasing risks and Capital outflows.
- India imposes high VDA taxes but lacks a corresponding legal framework and investor protections.
- Many investors, volume , and crypto startups are shifting to more clearly regulated markets.
- The central proposal is to legalize VDA as an asset class, establish a sandbox, and tighten AML regulations to bring operations back to the country.
High taxes coupled with a lack of legal protection are shifting the risk to crypto users.
Investors in India are subject to a 30% Capital gains tax and a 1% TDS (Total Distributed Tax) on each VDA transaction, while the market still lacks clear rules and corresponding safeguards.
The government currently taxes VDA as if it were fully recognized, but the regulatory approach is cautious, viewing it as a risky or discouraged area. As a result, users pay significant taxes but do not receive a comparable standard of protection in areas such as exchange transparency, dispute resolution, or liability in case of fraud.
The crypto market in India is also said to lack clear regulations, strong investor protections, and a dedicated system to curb money laundering. This concern was raised at the Rajya Sabha during the debate on the 2026–27 Federal Budget by MP Raghav Chadha.
MP Raghav Chadha warns that legal "blind spots" will not stop crypto but will only cause money to leave.
In his speech on the 2026–27 Federal Budget, Raghav Chadha argued that ambiguous regulations are not making crypto disappear, but are instead driving investors and companies to move overseas.
In his speech "The Good, The Bad, and The Way Forward," he emphasized that the clearer legal environments in Dubai and Singapore are attracting market participants. According to this argument, India risks losing high-quality human resources, investment Capital , and future tax revenue if it fails to provide consistent governance direction.
"Legalizing virtual digital assets as a type of asset."
– Raghav Chadha, speaking at the 2026–27 Federal Budget debate
He also stated that over 12 crore Indian investors are using overseas platforms to circumvent domestic restrictions, resulting in approximately 4.8 lakh crore of volume being moved overseas. According to the figures cited, around 73% of India's total VDA trading now takes place on international exchanges, and approximately 180 Indian crypto startups have relocated to countries with more "friendly" regulations.
The proposed solution involves legalizing VDA as an asset, establishing a sandbox, and tightening AML regulations.
Raghav Chadha suggested that India should tightly regulate crypto but keep it within the country through clear rules, strong compliance mechanisms, and effective oversight.
He argued that ignoring crypto is not the solution; instead, it's about recognizing it and designing a secure operating framework to mitigate systemic risks. In a Chia , he urged that instead of fearing innovation, we should manage it.
"Don't be afraid of innovation, manage it."
– Raghav Chadha, post on X
The technical focus of the proposal is to create a domestic “regulatory sandbox,” placing strong AML “barriers” to bring operations back domestically, increasing investor protection and improving compliance. He argues that this approach could “add 15,000–20,000 crore in annual tax revenue” if operations return to the country and the ecosystem is closely monitored.
“A clear domestic regulatory sandbox, along with strong AML barriers, could bring operations back into the country, protect investors, improve compliance, and add 15,000–20,000 crore in annual tax revenue.”
– Raghav Chadha, speaking at the 2026–27 Federal Budget debate
He further emphasized the direction of "strong management, ecosystem containment, and enhanced AML guidance," arguing that prohibition does not equate to protection, and that management is the true form of protection.
"My proposal is that we need strong regulation, containment of the ecosystem, and enhanced AML guidelines. Prohibition is not protection; regulation is protection."
– Raghav Chadha, speaking at the 2026–27 Federal Budget debate
Chainalysis' crypto adoption index shows India leading due to demand, not policy.
According to the Chainalysis 2025 Global Adoption Index, India still stands out in terms of crypto adoption, but this advantage is believed to stem more from its population size and public demand than from a supportive policy framework.
The Chainalysis 2025 Global Adoption Index report suggests that India has missed a major opportunity in the crypto space. Meanwhile, in North America, the inclusion of products like spot ETFs and the development of systems for institutional investors are described as contributing to increased adoption toward "mainstreaming."
Against that backdrop, Raghav Chadha's remarks highlight the limitations of the current approach in the 2026–27 Federal Budget: revenue from crypto exists, but a comprehensive regulatory framework to reduce outflows is lacking. The key question remaining is whether the government will translate these warnings into concrete policy action.
Frequently Asked Questions
Why is India's crypto policy XEM as contradictory?
Because VDA is taxed as an "accepted" asset class, but lacks clear regulations and corresponding investor protection mechanisms, users are subjected to high tax obligations in a risky environment.
What tax rate are crypto investors in India subject to?
The original text states a Capital gains tax of 30% and a TDS of 1% on each VDA transaction.
What solutions does Raghav Chadha propose for VDA?
He proposed legalizing VDA as an asset class, establishing a domestic regulatory sandbox, and strengthening AML "guardrails" to bring operations back to the country and raise compliance standards.
What does the Chainalysis 2025 Global Adoption Index say about India?
The report indicates that India has a high level of crypto adoption, but the article emphasizes that this advantage stems more from its population size and public demand than from supportive policies.
