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A Rationalise, regulate, revitalise – In search for crypto’s ‘RRR’ moment with Budget 2023

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It looks like you’re referring to the Indian Union Budget 2023 and its potential impact on cryptocurrency regulation. The phrase “Rationalise, Regulate, Revitalise” (RRR) suggests a three-pronged approach the government might take to address the evolving crypto landscape.

Here’s how this could be interpreted:

  1. Rationalise – The government may aim to refine the existing tax structure on digital assets. The 30% tax on crypto income and 1% TDS on transactions introduced in Budget 2022 significantly impacted trading volumes in India. A rationalisation could mean adjusting these rates to balance revenue generation with industry growth.
  2. Regulate – India has been advocating a global framework for crypto regulations rather than a unilateral approach. With the G20 presidency, there was hope for India to push for standardised global rules on digital assets. Budget 2023 could have focused on clearer domestic regulations under SEBI or RBI.
  3. Revitalise – With strict taxes and lack of regulatory clarity, many crypto firms and investors moved operations abroad. A revitalisation effort would involve fostering innovation, possibly through a CBDC (Central Bank Digital Currency) initiative while creating a friendlier ecosystem for Web3 and blockchain startups.

Ultimately, Budget 2023 did not bring immediate relief to the crypto sector, but India’s broader stance continues to evolve, focusing on international collaboration and cautious policy measures.

Were you looking for an analysis of what actually happened post-Budget 2023, or are you interested in what India’s next steps in crypto regulation might be?

Regulating crypto in India – more than what meets the eye

Regulating cryptocurrency in India has been a complex and evolving challenge, going beyond just taxation and legal recognition. There are multiple layers to this issue, each influenced by economic, technological, legal, and geopolitical factors.

1. The Tug of War: Ban vs. Regulation

India’s stance on crypto has oscillated between outright bans and regulatory frameworks. The RBI has historically been skeptical, even attempting to ban crypto in 2018 (later overturned by the Supreme Court in 2020). However, rather than an outright ban, the focus has now shifted to regulation, taxation, and oversight.

2. The Taxation Tightrope

In Budget 2022, the Indian government imposed:

  • 30% tax on crypto gains (similar to gambling or lottery winnings)
  • 1% TDS on transactions to track movements of funds

These rules led to a liquidity crunch, with volumes on Indian exchanges plummeting. Many users moved to offshore platforms, further complicating regulation and tax collection.

3. The Global Coordination Factor

India’s G20 presidency in 2023 played a pivotal role in shaping the global crypto dialogue. The government has consistently argued that crypto regulation cannot be effective in isolation—it needs a coordinated international approach. The IMF and FSB (Financial Stability Board) were roped in to frame recommendations on global crypto rules.

4. The CBDC Experiment

While crypto faces regulatory hurdles, India has launched its own Central Bank Digital Currency (CBDC) to offer a state-backed alternative. The RBI’s digital rupee is seen as a move to:

  • Promote financial inclusion
  • Offer a secure digital payment alternative
  • Reduce dependency on private cryptocurrencies

5. The Unresolved Questions

Despite progress, key concerns remain:

  • Consumer Protection: Without regulations, investors remain vulnerable to fraud and exchange collapses.
  • Clarity on Classification: Is crypto an asset, a currency, or a commodity? The lack of definition adds to legal uncertainty.
  • Ease of Doing Business: Web3 and blockchain startups are moving offshore due to regulatory uncertainty and high taxes.

What’s Next?

India is likely to adopt a phased approach—starting with stricter KYC norms, stronger enforcement against illicit activities, and eventually a regulatory framework aligned with global standards. The focus remains on balancing innovation with financial stability.

Do you see India moving towards a more crypto-friendly stance, or will regulation continue to be restrictive?

Crypto-taxation – first regulatory steps

Crypto-Taxation: India’s First Steps Toward Regulation

Taxation has been India’s de facto first step in regulating cryptocurrency, signaling the government’s intent to monitor and control the sector before introducing a comprehensive regulatory framework.

1. The Landmark Taxation Rules (Budget 2022)

India took its first concrete step toward crypto regulation by imposing strict tax laws on Virtual Digital Assets (VDAs) in Budget 2022. Key provisions included:

✅ 30% Tax on Crypto Gains

  • Flat tax rate, irrespective of income bracket
  • No deductions allowed (except cost of acquisition)
  • Losses cannot be set off against other income

✅ 1% TDS on Crypto Transactions

  • Deducted at source on all crypto trades above ₹50,000 (₹10,000 for retail investors)
  • Aimed at tracking transactions rather than revenue generation
  • Pushed traders to offshore platforms to avoid TDS

✅ Gifting Crypto? It’s Taxable Too!

  • If crypto is received as a gift, the receiver must pay tax on it

2. The Impact on the Indian Crypto Market

  • Trading volumes on Indian exchanges dropped by over 90% post-TDS implementation
  • Many users shifted to offshore exchanges or adopted peer-to-peer (P2P) trading
  • Indian Web3 startups relocated to crypto-friendly jurisdictions like Dubai and Singapore

3. What This Means for Crypto Regulation

  • Taxation = Recognition? While taxation does not mean legalization, it acknowledges crypto’s presence in the financial system.
  • A Precursor to Full Regulation: Many countries have started with taxation before framing broader regulations.
  • Need for Rationalization: Calls for reducing TDS to 0.1% and allowing loss set-offs have grown louder.

4. The Road Ahead

  • Possible adjustments in taxation structure to encourage domestic participation
  • Stronger global collaboration under the G20 framework
  • Introduction of a licensing regime for exchanges and service providers

Taxation was just the first step—the bigger question remains: Will India follow up with a clear regulatory framework, or will high taxes continue to drive crypto innovation overseas? 🚀

Experience of crypto-taxation in India – the aftermath

Experience of Crypto-Taxation in India – The Aftermath

India’s decision to impose harsh crypto taxation in Budget 2022 had far-reaching consequences for the industry, investors, and the broader Web3 ecosystem. While the government took this as a first regulatory step, the aftermath revealed several unintended effects.

1. The Trading Exodus – Declining Volumes & Migration to Offshore Exchanges

  • The 1% TDS on all crypto transactions led to a massive drop in trading volumes—Indian crypto exchanges saw an 80-90% decline within months of implementation.
  • Traders started shifting to global exchanges like Binance, KuCoin, and Coinbase to avoid TDS deductions.
  • Many adopted P2P (peer-to-peer) transactions, where users bypass exchanges altogether, making enforcement difficult.

💡 Result? A rise in unregulated trading, the exact opposite of what the tax policy intended.

2. Retail Investors Hit Hard – No Loss Set-Offs, No Deductions

  • Unlike stocks or mutual funds, where losses can be adjusted against gains, crypto investors in India are not allowed to offset losses from one trade against another.
  • Even if someone made ₹10 lakh in profit and ₹8 lakh in losses, they had to pay 30% tax on ₹10 lakh instead of net ₹2 lakh.
  • The lack of deductions meant traders faced huge tax burdens, discouraging active participation.

💡 Result? Many investors stopped trading altogether or moved funds to international platforms.

3. Web3 Brain Drain – Startups Relocating Overseas

  • Many Indian blockchain and crypto startups, such as Polygon, WazirX, and CoinDCX, either moved operations or set up HQs in crypto-friendly countries like Dubai, Singapore, and the Cayman Islands.
  • Uncertainty in regulation, coupled with high taxes, made India an unattractive hub for Web3 innovation.

💡 Result? India lost potential revenue and jobs that could have been generated within the country.

4. The Government’s Stance – No Relaxation Yet

  • Despite industry backlash, the government did not reduce the 1% TDS or allow loss set-offs in Budget 2023 or 2024.
  • The government maintains that crypto transactions must be tracked to prevent tax evasion and illicit activities.
  • India continues to advocate for a global regulatory framework under G20 before making domestic policy adjustments.

💡 Result? Uncertainty remains, with traders and companies stuck in limbo while waiting for clarity.

5. What’s Next? Possible Future Adjustments

While the government has not budged yet, there are discussions around:
✅ Lowering TDS from 1% to 0.1% to encourage domestic trading
✅ Allowing loss set-offs to make taxation fairer
✅ Creating a regulatory framework with licensing for exchanges

With global crypto regulations evolving and Web3 adoption growing, India will eventually need to rationalize its policies. Until then, the industry remains in wait-and-watch mode.

Final Thought: 🧐 India took the first step with taxation, but unless regulations are balanced, will crypto innovation thrive within the country or continue its exodus? 🚀