Will India Embrace Crypto or Let Fear Stifle Its Web3 Future?

India’s cryptocurrency sector is navigating a complex regulatory environment as the Union Budget 2025 approaches, with industry leaders and policymakers at odds over taxation, regulation, and market potential. Despite being ranked as the world’s top cryptocurrency adoption market by the Chainalysis Global Crypto Adoption Index 2025, India remains cautious about establishing a comprehensive legal framework for digital assets. Meanwhile, a high-ranking Union Minister, Jayant Chaudhary, has declared his and his spouse’s cryptocurrency holdings for the second consecutive year, signaling a growing acceptance among India’s political elite.

The current taxation regime for cryptocurrencies in India imposes a flat 30% tax on profits and a 1% Tax Deducted at Source (TDS) on all transactions, making it one of the most burdensome frameworks globally. Industry stakeholders argue that this model disincentivizes domestic participation and drives investors to offshore exchanges. With the Union Budget 2025 approaching, the sector is calling for reforms such as a reduction of the TDS rate from 1% to 0.01%, the ability to offset and carry forward losses, and the creation of a clear legal and regulatory framework. These changes, they argue, could boost compliance, reduce capital flight, and attract foreign investment while positioning India as a global leader in blockchain and Web3 innovation.

The hesitation to regulate crypto stems largely from concerns over systemic risks, as highlighted by the Reserve Bank of India (RBI), which remains wary of legitimizing a sector it considers inherently speculative and volatile. This caution is compounded by past incidents, such as the WazirX and CoinDCX hacking events, which together resulted in losses exceeding $274 million. These breaches have reinforced the perception that premature regulation could expose the financial system to greater instability. Additionally, the Indian government has yet to introduce a formal crypto policy since the 2021 Cryptocurrency and Regulation of Official Digital Currency Bill was put on hold.

A potential middle path lies in stablecoins—digital assets pegged to fiat currencies like the US dollar or Indian rupee—which are gaining traction among industry experts and entrepreneurs. Proponents argue that regulated INR-backed stablecoins could reduce transaction costs, enhance financial inclusion, and boost India’s economic growth. The introduction of such a currency, however, carries its own risks, including the potential for liquidity strains and capital flight if not carefully managed. While the government appears hesitant to move forward with stablecoin regulation, the global market for stablecoins has already exceeded $150 billion, with no rupee-backed counterpart yet in place.

Meanwhile, the government’s approach to crypto has left the industry in a legal gray area. Although virtual digital assets (VDAs) are taxed under the Income Tax Act and covered under the Prevention of Money Laundering Act, there remains no clear regulatory body to oversee the sector. This has created uncertainty for businesses and investors, many of whom are lobbying for a licensing framework that balances innovation with consumer protection. The industry also emphasizes the importance of aligning crypto taxation with other asset classes, as the current regime is seen as discriminatory and unsustainable.

As the Union Budget 2025 nears, the pressure on policymakers to provide clarity is mounting. A well-structured regulatory and tax framework could not only enhance compliance but also foster a more inclusive and innovative digital asset ecosystem. For now, India remains on the edge of a critical decision—whether to embrace the growing crypto trend and solidify its global leadership, or to continue its cautious, wait-and-watch approach.