Taxed, Tracked, and Trapped: India’s Crypto Strategy Needs a Reboot

India’s crypto policy stands at a pivotal juncture. Despite being home to one of the world’s largest populations of crypto users, the country’s regulatory stance remains ambiguous, punitive, and increasingly out of sync with global developments. A recent opinion piece in The Hindu BusinessLine urges policymakers to move beyond fear-driven deterrence and embrace a structured, innovation-friendly framework that can unlock crypto’s potential without compromising financial stability.

Here’s a comprehensive breakdown of the current landscape, emerging global trends, and what India risks by standing still.

Key highlights from the current policy vacuum  
1. India has not banned crypto, but it hasn’t regulated it either  
2. A 30 percent tax on gains and a 1 percent TDS on every trade have driven 90 percent of crypto volumes offshore  
3. Despite this, domestic exchanges still report tens of millions of active users  
4. The Reserve Bank of India continues to warn against private cryptocurrencies, citing risks to monetary sovereignty  
5. India remains one of the top global recipients of remittances, a sector ripe for crypto disruption  

The paradox of public interest vs. official hostility  
While regulators remain wary of crypto’s impact on macroeconomic stability, public interest in digital assets continues to surge. This disconnect has created a policy vacuum—neither a ban nor a meaningful framework exists. Instead, India has relied on tax deterrence and regulatory ambiguity, pushing innovation offshore and leaving users in limbo.

The global shift: stablecoins and tokenisation  
Until recently, crypto was dismissed by mainstream finance as speculative noise. But two developments have changed the narrative:  
- Stablecoins, which are digital tokens backed by fiat currency, now circulate over $250 billion globally  
- Tokenised assets, which represent stocks, bonds, or funds on blockchain, are gaining traction among institutional players  

In July, the US passed the GENIUS Act, offering regulatory clarity for dollar-backed stablecoins. Wall Street firms are now racing to tokenize money market funds, deposits, and equities. BlackRock’s tokenised fund has already crossed $2 billion, and Robinhood is offering tokenised US stocks to European investors.

These aren’t just financial fads—they’re infrastructure upgrades. Stablecoins offer near-instant settlement, bypassing legacy systems like SWIFT and Visa. Tokenisation enables 24/7 trading and broader access to traditionally illiquid assets.

What India could gain  
India’s massive remittance market could save billions by adopting crypto rails for cross-border flows. A well-designed rupee-backed stablecoin could enhance the rupee’s role in digital payments and reduce dependence on foreign intermediaries. Tokenised assets could democratise access to infrastructure bonds, startup equity, and municipal projects.

But current policies are proving counterproductive. The 1 percent TDS on every crypto transaction has throttled liquidity and driven users to offshore platforms. Without a clear regulatory framework, India risks missing out on the next wave of financial innovation.

The case for a new approach  
Just as India built UPI to democratise digital payments, it can build a crypto framework that balances innovation with oversight. This means:  
- Recognising stablecoins and tokenised assets as legitimate financial tools  
- Creating a licensing regime for exchanges and custodians  
- Reducing punitive taxes that stifle participation  
- Establishing clear rules for anti-money laundering and investor protection  

India has the talent, infrastructure, and scale to lead the next phase of digital finance. But leadership requires clarity, not caution.

Looking ahead  
The crypto revolution is no longer speculative—it’s structural. As global finance embraces blockchain-based systems, India must decide whether to shape the future or be shaped by it. A rethink of the current strategy isn’t just timely—it’s essential.

Sources: The Hindu BusinessLine, Financial Express, Outlook India, TechStory