India’s top tax authority, the Central Board of Direct Taxes (CBDT), has launched a consultation process with crypto stakeholders aimed at overhauling the country’s evolving digital asset regulatory and tax infrastructure. Key elements under consideration include the current 1% Tax Deducted at Source (TDS) on Virtual Digital Asset (VDA) transactions, stricter oversight of crypto platforms, and enhanced tax compliance mechanisms.

Despite crypto’s growing popularity as an investment vehicle in India, concerns remain about underreporting, possible tax evasion, and the challenges posed by cross-border exchanges. Stakeholders have faced outdated or unclear tax rules, leading to compliance ambiguity and systemic risk. The CBDT’s outreach signals an intent to modernize regulations automatically with the pace of innovation.

• Reassessing the 1% TDS Rate: The flat TDS levy, introduced in 2022, has been criticized for burdening day traders and high-frequency investors. Possible revisions include differentiating between short-term trades and long-term investments, or introducing exemptions to promote liquidity and adoption.

• Loss Offset Provisions: Given crypto’s inherent volatility, market participants are urging the CBDT to allow deducting capital losses from profits, which currently isn’t permitted. Adoption here could help reduce tax liabilities while encouraging risk-taking and innovation.

• Enhanced Oversight & Licensing: There’s a growing call for improved monitoring and licensing standards for Virtual Digital Asset Service Providers (VDASPs). Tighter regulation could reduce fraud, improve consumer trust, and align VDA operations with financial regulatory norms.

• Broader Regulatory Alignment: India’s move mirrors global efforts—from stablecoin regulation under the U.S. GENIUS Act to MiCA frameworks in Europe—highlighting a shift toward harmonized crypto oversight.