Indian court warns against ‘crypto’ amid rise in tax

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An Indian High Court has expressed concerns about digital assets’ potential impact on India’s economy, stating that they convert legitimate currency into an obscure, untraceable form. 

Justice Girish Kathpalia reportedly made the observation while rejecting a bail application filed by a businessman accused in a digital asset-related corruption case. The court also emphasized the gravity of the case, citing the defendant’s history of involvement in at least 13 other similar offenses.

“Dealing in cryptocurrency has profound implications on [the] economy of our country by way of dissolution of recognised money into the dark unknown and untraceable money. The allegations against the accused in this multi-victim scam are quite serious, more so in the light of his antecedents of involvement in as many as 13 more cases of similar nature,” the Delhi High Court said. 

In a case involving the Dubai-based digital asset platform Pluto Exchange, Umesh Verma—who was arrested in December 2020 and later released on interim bail—has now been ordered by the court to immediately surrender to either the trial court or the investigating officer.

The court expressed concern over Verma’s continued solicitation of funds even as digital assets had been officially derecognized, calling his actions malicious. According to the court’s preliminary findings, Verma allegedly misled 61 investors by promising unrealistic returns of 20% to 30%, continuing his fraudulent operations despite warnings.

Highlighting the gravity of the charges, the judge noted that Verma’s financial resources and the scale of the alleged fraud—spanning this and 13 additional cases—pose a significant flight risk, underscoring the likelihood of a lengthy prison term if convicted.

The High Court’s ruling follows close on the heels of the Supreme Court of India’s sharp criticism of the central government for its persistent delay in formulating regulations for digital assets. Just weeks earlier, the Supreme Court voiced serious concern over the legislative vacuum, warning that the absence of clear guidelines has opened the door to widespread misuse and financial irregularities. It compared the unregulated use of digital currencies to “hawala”—a banned, underground method of transferring money across borders.

The bench also highlighted the challenges enforcement agencies face, such as the difficulty in collecting evidence without a formal definition or regulatory framework for digital assets.

These concerns came to light during the hearing of a bail plea filed by Gujarat state resident, Shailesh Babulal Bhatt, who is accused of digital asset-related fraud in multiple Indian states. Although the petition focused on individual charges, Justices Surya Kant and N. Kotiswar Singh used the opportunity to express unease over the lack of regulatory clarity in the digital asset sector.

The court reminded the central government that it had already urged the creation of a comprehensive policy nearly two years ago. While it acknowledged that banning digital assets entirely would be an impractical move given its growing global relevance, the bench underscored the immediate need for a foundational regulatory structure.

India ramps up AI use to fight tax evasion 

Meanwhile, India’s Central Board of Direct Taxes (CBDT) is looking at artificial intelligence and data analytics to crack down on tax evasion, CBDT Chairman Ravi Agrawal revealed in an interview with the Economic Times. This initiative gains momentum as a new income tax legislation is likely to be approved during the ongoing parliamentary session.

With access to over 6.5 billion domestic digital transactions and international data-sharing networks, the department is now in a stronger position to detect discrepancies in income declarations, Agrawal noted. He emphasized that digital access rights are exercised selectively—specifically during search and seizure operations targeting non-compliant individuals—and are not meant to infringe on the privacy of honest taxpayers.

Agrawal highlighted an improvement in the quality of data shared by foreign agencies under tax information exchange 
agreements. They have a clearer understanding of data requirements now, which is aiding in tracking individuals with undisclosed foreign assets. He also noted that the department is actively expanding its oversight to include emerging high-risk areas such as the dark web and other evolving financial channels.

Surge in digital asset tax collections

Although lacking formal regulatory frameworks, India has primarily approached digital assets through stringent tax measures. According to a Finance Ministry update, the government reportedly saw an increase in income tax collections from digital asset profits in the 2023–2024 financial year, with revenues reaching up to ₹437.43 crore (about $50.6 million), growing 63% over the previous year.

Minister of State for Finance, Pankaj Chaudhary, informed that tax receipts from virtual digital assets (VDAs) totaled ₹269.09 crore (about $31.1 million) in 2022–23. The figure rose significantly the following year. He added that data for 2024–2025 is not yet available since the income tax filing deadline has not yet passed.

Although India has not yet enacted a dedicated law to govern digital assets, a stringent tax regime was enacted in April 2022. It includes a flat 30% tax on profits from VDAs, with no allowance for offsetting losses against other income or carrying them forward. A 1% tax deducted at source (TDS) was also introduced on digital asset transactions, as well as an 18% Goods and Services Tax (GST) on trading fees.

The sharp increase in tax revenues highlights the rapid expansion of digital asset transactions across India, despite the lack of a fully developed regulatory structure governing these assets. This surge reflects the rising engagement of individuals and businesses in the digital asset space, signaling significant market growth even as legal guidelines remain underdeveloped.

Hashed Emergent, Black Dot propose policy framework

Web3 firm Hashed Emergent and policy advisory agency Black Dot have taken the onus to urgently propose a detailed framework to clarify India’s murky digital asset regulations. 

Called the Crypto-Systems Oversight, Innovation and Strategy (COINS) Act, this draft legislation offers a comprehensive blueprint to create a transparent, innovation-friendly environment for digital assets across the country. Though it is non-binding and requires parliamentary approval, the COINS Act provides a critical roadmap for reform.

“The Crypto-Systems Oversight, Innovation and Strategy (COINS) Act is a draft law that envisions a pro-innovation crypto regulatory framework for India, designed to inform dialogue between regulators and the industry, in light of the development of global crypto regulation,” Hashed Emergent said on X. “It’s our sincere hope that the COINS Act model law provides a clear, constructive dialogue and path forward between regulators and the industry that empowers builders, protects users, and accelerates India’s global crypto leadership.” 

The framework prioritizes key protections for digital asset users, including rights to self-custody, open protocol access, and financial privacy. It also addresses pressing issues like ambiguous tax policies, inconsistent regulation, and the lack of a dedicated digital asset authority. Notably, the proposal includes plans to establish a strategic Bitcoin reserve for India.

Central to the Act is a recommendation for the creation of a new regulatory body, the Crypto Assets Regulatory Authority (CARA), tasked with overseeing the digital asset industry in alignment with global best practices. Inspired by regulatory models such as the European Union’s Markets in Crypto-Assets Regulation (MiCA) and Singapore’s sandbox, the COINS Act is expected to meet India’s specific legal and economic challenges—signaling a vital step toward urgently needed digital asset regulation in the country.

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