India has a peculiar approach to cryptocurrency: tax it heavily, but pretend it doesn't really exist. Raghav Chadha, a member of India's upper chamber of Parliament, wants to change that.

The Tax-Without-Recognition Paradox

Speaking in Parliament on Monday, Chadha pointed out the absurdity of India's current stance. The country imposes a brutal 30% flat tax on virtual digital asset gains—regardless of how long you held them or what income bracket you're in. There's also a 1% tax deducted on every single transfer or sale.

"India taxes VDAs [virtual digital asset] like they are legal. But regulates it like they are illegal," Chadha said. Translation: the government is happy to collect your money, but won't give you legal protections, clear guidelines, or anti-money laundering frameworks in return.

Billions Flowing Offshore

The consequences are predictable. An analysis by KoinX, a cryptocurrency tax accounting platform, found that 72.66% of India's crypto trading volume—roughly $5.6 billion—now happens on offshore platforms. Chadha cited these figures and added that unclear regulations have pushed about 180 cryptocurrency startups to relocate abroad.

The lawmaker argues that India needs a "clear domestic regulatory sandbox" that grants cryptocurrencies proper "asset class status." Do that, he says, and billions in annual tax revenue could flow back to the government.

"Let us not fear innovation, let us regulate it. Prohibition is not protection, Regulation is protection," Chadha stated.

The Stablecoin Problem

India's regulatory limbo has been dragging on for years. The government first announced a cryptocurrency bill in 2021, then kept postponing it. Even the country's Supreme Court got frustrated, calling the absence of clear crypto guidelines "unfortunate."

Meanwhile, T. Rabi Sankar, Deputy Governor of the Reserve Bank of India, ruled out stablecoins entirely in December. His reasoning? They don't qualify as "sovereign currencies," according to The Hindu. Most stablecoins peg to the U.S. dollar or European currencies, and Sankar worries they could lead to dollarization and undermine the Indian Rupee's dominance domestically.

So India finds itself stuck: collecting taxes from an asset class it won't recognize, watching capital flee offshore, and debating whether innovation is an opportunity or a threat.