India, with over 100 million crypto users, is still lacking a comprehensive virtual digital assets (VDA) law. The current rules focus on tax and anti-money laundering obligations but fail to provide adequate consumer protection or regulate market behavior. This has led to concerns about investor protection, unregulated trading practices, and the impact of the 30% tax plus 1% TDS regime, which may be driving users to offshore platforms.
Stakeholders are discussing the implementation of a risk-based VDA framework, licensing requirements for exchanges and custodian banks, standards of conduct for business conduct, and regulations specific to tokenized real assets (RWAs). Proposed safeguards include clearer custody standards, defined insolvency procedures, stricter disclosure standards, reserve transparency, and closer monitoring of debt and liquidity risks. The goal is to create a more robust regulatory system that balances innovation with investor protection.
A formal review of the VDA guidelines is currently underway, which could lead to a stronger framework that prioritizes investor protection. The review will cover key areas such as the balance between innovation and investor protection, oversight of various types of VDAs, and alignment with global standards. The aim is to create a clearer and more robust regulatory system that addresses the current gaps and ambiguities in the Indian VDA framework.
The current regulatory framework in India is based on high taxes and anti-money laundering requirements but lacks comprehensive regulation or strong consumer protection. The term “VDA” is defined in the Income Tax Act, and individuals are allowed to buy, sell, and hold VDAs, but they are not considered legal tender. The 30% tax on gains from VDA transfers and the 1% withholding tax on transactions above certain limits have been criticized for being too stringent.
The review is expected to consider multiple regulatory models, including a VDA law with risk-based supervision, licensing standards for VDA service providers, and rules of conduct for standardized risk disclosures and advertising standards. The goal is to create a well-designed regulatory framework that strengthens user protection and the financial system while supporting responsible growth of the sector.
A well-thought-out VDA review could bring significant benefits, including clearer protections for users without hindering innovation, greater market integrity and financial system resilience, and reduced money laundering risks. By clearly defining the responsibilities and obligations of service providers, users will be given stronger rights and clearer remedies. Effective rules for tokenized assets can also reduce the risk of problems spilling over into traditional finance.
For more information on how India’s VDA review may strengthen protections across the crypto ecosystem, visit https://cointelegraph.com/news/how-india-s-vda-review-may-strengthen-protections-across-the-crypto-ecosystem?utm_source=rss_feed&utm_medium=rss_category_analysis&utm_campaign=rss_partner_inbound
