What to Know
- CBDT begins first-ever dialogue with Indian crypto exchanges on VDA taxation.
- Exchanges asked to give inputs on whether a new VDA law is needed.
- Offshore trading shifts, tax burdens, and TDS compliance under review.
The Central Board of Direct Taxes (CBDT), part of the Income Tax Department, has started talking to Indian crypto exchanges about India’s Virtual Digital Asset (VDA) tax system. This change means that the government is no longer making decisions on its own, but is instead talking with the crypto ecosystem. People in the market see this as a good sign that India might finally be willing to improve its current system.
What the Income Tax Department Wants to Know
The CBDT has asked exchanges to respond to a detailed set of questions. These cover a wide range of policy and compliance issues that directly impact traders, businesses, and regulators.
Among the most critical questions: should India rely on its current VDA regulation or introduce a comprehensive VDA law administered by a single authority, such as SEBI, RBI, or FIU-IND? The department also wants to know more about how trading volumes going offshore affect volumes and liquidity, as well as how hard it is for exchanges to follow TDS rules.
Other queries explore whether different TDS treatments should apply for retail, institutional, or market-maker transactions, and how India can create a level playing field between domestic and offshore exchanges. By seeking answers to these questions, the government is acknowledging industry concerns that have persisted since harsh tax rules were first imposed.
India’s Current Crypto Tax Regime
Since April 2022, India has had a flat tax of 30% on crypto income and a 1% TDS on transactions, and there is no way to offset losses. A lot of people have said that this framework is one of the most restrictive in the world.
Reports say that a lot of Indian trading volume has moved to offshore platforms, where it is easier to follow the rules and there is more liquidity. Kashif Raza, Founder of Bitnning, said that this has made the gap between India’s domestic market and international exchanges bigger. He said that “talking to each other is the first step to closing this gap and making sure Indian traders don’t get left behind.”
The government can lower capital flight and bring activity back to regulated domestic platforms by looking at these policies again. According to Raza, this move could pave the way for a “balanced regulatory framework where compliance does not become a burden and innovation is not stifled.” He also highlighted that a transparent dialogue between regulators and industry participants will build trust and improve tax compliance.
The Urgency of Clear Rules
India’s crypto story hasn’t just been about taxes; it’s also been about trust. Just last month, Indian exchange CoinDCX was rocked by a security breach that saw about ₹3,64 crore (42 million) stolen from an internal operational wallet. The company has assured users that customer funds have remained untouched and safe. Yet, the incident rattled the ecosystem and reinforced fears about exchange vulnerabilities and cybersecurity risk.
Before that, WazirX investors endured the fallout from a cyberattack over a year ago. The lack of resolution has left many waiting—especially as legal disputes drag on. That prolonged uncertainty has hurt investor confidence and highlighted the need for clear rules around fund safety, transparency, and accountability.
The Road Ahead for Crypto Tax in India
This conversation doesn’t mean that policies will change right away, but it does mean that India will change how it handles digital assets. For the first time, people who work in the crypto industry will be able to have a say in tax policies that affect them directly.
India could see changes to its TDS rules, tax rate structure, and regulatory clarity if the government takes these suggestions seriously. This consultation could lead to a dedicated VDA law that protects investors, makes sure taxes are paid, and helps the market grow.
The industry is keeping a close eye on things for now. As Raza summed up: “It’s just the beginning, but it’s the beginning we all wanted.”
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