India Crypto Assets Regulatory Framework Continues to Evolve: 2025 Budget Introduces Stricter Requirements

India's Crypto Assets regulatory framework is continuously evolving. The 2025 budget proposal introduces stricter reporting requirements and strengthens regulatory mechanisms on top of the 30% tax implemented in 2022. The Income Tax Act's Section 115BBH formally incorporated virtual digital assets (VDA) into the tax system for the first time in 2022, but it does not allow traders to offset losses against other income. The new Section 285BAA added in the 2025 budget proposal further expands the regulatory scope, requiring specific institutions to report crypto transactions within stipulated timelines. At the same time, the government has broadened the definition of VDA to encompass all crypto assets based on distributed ledger technology to adapt to industry developments. These changes coincide with an upturn in the Crypto Assets market, but the market still faces regulatory uncertainty and volatility risks.

In recent years, countries around the world have been shifting their regulatory attitudes toward Crypto Assets from excessive regulation to a more flexible, cautious, and adaptive approach. This shift is primarily driven by the rapid global adoption of Crypto Assets. However, India, as one of the most active countries in global crypto trading, still maintains strict regulations and harsh tax policies, falling far behind the friendly regulatory trends for Crypto Assets in the international market.

India's cryptocurrency tax system is considered one of the strictest in the world, not only undermining investor confidence but also severely hindering the innovation and application development of blockchain technology. Despite repeated calls from various sectors of the market to relax tax policies, the Indian government's position has remained steadfast. However, in the 2025 fiscal budget and the revision of the Income Tax Act, the Indian government made some adjustments to the existing tax system.

India's Crypto Assets regulatory policy has undergone an evolution from strict restrictions to gradual adjustments. Initially, the Reserve Bank of India held a highly skeptical attitude towards Crypto Assets, even issuing a notice in 2013 warning investors about the speculative risks of these assets. In 2018, the Reserve Bank of India further prohibited banks from conducting transactions with Crypto-related businesses, attempting to limit market development through financial means. However, this ban faced strong opposition from industry organizations and market participants, and in 2020, it was ruled unconstitutional by the Supreme Court of India.

The 2022 budget proposal for the first time includes Crypto Assets and other encryption assets within the scope of legal regulation, establishing a series of tax policies, including a 30% capital gains tax on the profits from Crypto Assets and a 1% withholding tax on the transaction amount. Although the introduction of this tax system provides a legal basis for tax compliance to some extent, its high tax burden and stringent regulatory requirements remain controversial.

The introduction of the 2025 fiscal budget did not fundamentally reform the current tax system; it only strengthened regulation in the areas of Crypto Assets tax reporting and information disclosure, which is planned to officially take effect in April 2026.

Despite the increasingly lenient regulatory policies in various jurisdictions worldwide, India still maintains the most stringent crypto tax regime globally. The 2025 budget proposal and the revised Income Tax Act make adjustments to tax rules, but overall, they fail to change the current restrictions on cryptocurrency trading. Currently, India imposes a tax rate of 30% on crypto asset gains, which is at an extreme level globally. Additionally, this tax system does not allow investors to deduct losses or operating costs, leading many crypto companies and investors to migrate to more friendly jurisdictions. The 2025 budget proposal further expands the definition of "crypto assets," bringing all blockchain-based crypto assets into the tax category. However, this definition still does not classify different types of crypto assets, failing to distinguish their technical uses and economic properties, which exacerbates regulatory compliance uncertainty.

The Income Tax Act imposes stricter penalties on undeclared VDAs, classifying them as "undeclared income" and imposing fines of up to 70%, without any exemptions or relief policies. This level of punishment reflects the Indian government's high-pressure attitude towards Crypto Assets, and more critically, the overly broad definition of Crypto Assets by the Indian government has resulted in a heavy tax burden for Indian crypto users.

In such a harsh tax environment, the large-scale relocation of domestic crypto enterprises in India has become a trend, while the continuous growth of trading volume in the crypto market reflects a significant divergence between regulatory policies and market realities. Although the government attempts to curb the crypto market through high tax policies, the younger generation of investors in India still views crypto assets as a primary or supplementary source of income.

India's stringent tax policies undoubtedly increase the difficulty for encryption companies to operate in the local market. Although the crypto industry in India remains vibrant, other jurisdictions with more favorable regulatory environments are attracting companies to relocate. Currently, the Indian crypto market continues to benefit from the rise in crypto asset prices. Research predicts that by 2035, the size of the Indian crypto market is expected to grow from the current $2.5 billion to $15 billion. However, overly strict regulations may drive capital from India's crypto industry to other countries, leading to reduced government tax revenue, limited market innovation, and impacting India's competitiveness in the global digital financial ecosystem.

Another major challenge in the Indian crypto market is the complexity of compliance and legal uncertainty. Although the Indian government proposed a comprehensive crypto regulatory framework as early as 2021, the bill was more inclined to ban Bitcoin and alternative coins, while promoting the central bank's digital currency, ultimately leading to the bill's delayed implementation. In this regulatory environment, market participants face sudden policy changes and compliance risks, which hinder long-term investments. Businesses and investors are concerned about the potential for government crackdowns or additional tax burdens in the future, which affects business decisions and market vitality.

In summary, although the Indian government has strengthened regulations under the guise of financial stability, the strict tax system and vague regulatory framework are severely restricting innovation in India's Crypto Assets market and affecting India's global competitiveness. The Indian government needs to find a balance between investor protection and market development, reduce tax rates, clarify asset classification, and reduce legal uncertainty to enhance market confidence and attract more capital. If India continues to maintain its current regulatory stance, it may miss out on economic opportunities in the blockchain and digital finance sectors; conversely, India still has the potential to become a significant player in the global Crypto Assets market.