Will India Welcome Cryptocurrency or Allow Caution to Hold Back Its Web3 Prospects?

As the Union Budget 2025 draws near, India’s cryptocurrency industry finds itself grappling with an intricate regulatory landscape, with ongoing disagreements between industry leaders and policymakers regarding taxation, regulation, and potential market growth. Although India has earned the top spot in the Chainalysis Global Crypto Adoption Index 2025, the country remains hesitant to introduce a robust legal structure for digital assets. Adding to the changing climate, Union Minister Jayant Chaudhary has publicly disclosed his and his wife’s cryptocurrency assets for the second year running, indicating a growing degree of acceptance among India’s political leadership.

India currently enforces one of the world’s strictest tax policies on cryptocurrency, levying a 30% flat tax on profits and a 1% Tax Deducted at Source (TDS) on every transaction. Industry participants argue that this heavy-handed system discourages local involvement and prompts investors to move their funds to foreign platforms. In anticipation of the upcoming budget, the sector is advocating for measures such as lowering the TDS from 1% to 0.01%, permitting losses to be carried forward and offset, and implementing definitive legal and regulatory guidelines. Supporters believe these reforms would encourage compliance, minimize capital outflows, attract international investment, and help solidify India’s standing as a leader in blockchain and Web3 technologies.

The reluctance to regulate cryptocurrencies has largely been driven by worries over systemic risks, as underscored by the Reserve Bank of India (RBI), which remains skeptical about granting legitimacy to what it sees as a speculative and unpredictable industry. Previous security breaches, including the major hacks of WazirX and CoinDCX that resulted in losses of over $274 million, have heightened these concerns. Such incidents have strengthened the belief that premature regulation could introduce additional instability into the nation’s financial system. Furthermore, the Indian government has yet to reintroduce a formal crypto policy since shelving the 2021 Cryptocurrency and Regulation of Official Digital Currency Bill.

Stablecoins—digital currencies backed by fiat assets such as the US dollar or Indian rupee—are being discussed as a potential compromise, gaining momentum among entrepreneurs and industry experts. Advocates suggest that regulated INR-pegged stablecoins could lower transaction fees, broaden financial access, and contribute to India’s economic progress. Nonetheless, launching such a currency also carries risks, including possible liquidity pressures and capital outflows if not managed prudently. Despite this, while India’s authorities remain cautious about regulating stablecoins, the global stablecoin market has already surpassed $150 billion, and an INR-backed stablecoin has yet to emerge.

At present, the government’s stance leaves the crypto sector in a state of regulatory limbo. Virtual digital assets (VDAs) are subject to the Income Tax Act and the Prevention of Money Laundering Act, but no dedicated regulatory authority exists to supervise the industry. This has fostered considerable uncertainty for companies and investors, many of whom are pushing for a licensing system that balances innovation with protections for consumers. Industry voices also highlight the need to bring crypto taxation in line with other asset categories, arguing that the current approach is both unfair and unsustainable.

With the Union Budget 2025 on the horizon, there is increasing demand for policymakers to deliver greater clarity. Establishing comprehensive regulatory and tax policies could not only improve compliance but also nurture a more dynamic and inclusive digital asset market. For now, India stands at a pivotal juncture—facing the choice between embracing the surging crypto movement and reinforcing its global leadership, or maintaining a cautious and observant stance.