Raghav Chadha, a member of India’s Rajya Sabha, urged the government on Monday to grant legal status to cryptocurrencies and stablecoins through a clear regulatory sandbox, arguing it would keep trading and startups from shifting offshore while generating billions in tax revenue.
Chadha framed the push as a choice between rules and flight, saying regulation would protect innovation rather than drive activity underground or abroad. He called for a structured sandbox that gives companies and regulators a defined place to test products and compliance obligations.
“India taxes VDAs like they are legal. But regulates it like they are illegal,” Chadha said, using the government’s term for virtual digital assets (VDAs). He urged “asset class status” and added: “Let us not fear innovation, let us regulate it. Prohibition is not protection, Regulation is protection.”
The appeal comes as India’s approach to crypto remains anchored in taxation and enforcement, without formal recognition for VDAs or a single regulator overseeing the sector. Chadha argued that clearer rules would pull activity back onshore and reduce the incentive for startups to relocate abroad.
India already levies a 30% flat tax on gains from VDAs, including cryptocurrencies and NFTs, regardless of holding period or income slab. A 1% TDS applies on transfers, even as VDAs lack formal recognition, investor protections, or anti-money laundering frameworks.
Chadha highlighted that mismatch as a central policy contradiction, pressing the government to align its regulatory treatment with how it taxes the market. He argued that a legal framework, rather than a patchwork of compliance measures, would provide clarity for investors and companies operating in India.
Market activity, he said, has increasingly moved beyond the country’s reach. KoinX analysis shows 72.66% of India’s $5.60 billion cryptocurrency trading volume occurs on offshore platforms, and 180 startups have relocated abroad due to regulatory uncertainty.
The KoinX figures have become part of a broader debate in India over whether high taxes and uncertain rules have encouraged traders to move to venues outside domestic oversight. Chadha argued that clear rules would retain this activity domestically.
India’s Union Budget 2026, presented by Finance Minister Nirmala Sitharaman, kept crypto taxes unchanged at 30% on gains and 1% TDS. Her speech did not mention VDAs, even as the government maintained one of the world’s steepest tax treatments for retail crypto gains.
A new layer of compliance pressure is also approaching under changes tied to reporting. New Income Tax Act penalties for delayed or incorrect reporting apply from April 1, 2026, adding to scrutiny on how individuals and businesses disclose VDA transactions.
Even with those penalties and the existing tax regime, the legal scaffolding around crypto remains limited. VDAs face taxation, but they still lack the formal recognition, investor protections, and anti-money laundering frameworks Chadha cited in his remarks.
Recent regulatory moves have focused on compliance rather than legalization, with the Financial Intelligence Unit laying out customer checks for exchanges. FIU guidelines require crypto exchanges to use live selfies, with eye and head movement detection aimed at blocking deepfakes.
The FIU steps also require geolocation and IP capture with timestamps at signup, pushing exchanges to store details that can help trace account access and the location of onboarding. The guidelines require bank verification through small test transfers and an extra government-issued photo ID.
Email and mobile verification also form part of the FIU framework, building a multi-step onboarding process designed to tighten identity controls. The measures reflect an enforcement-first approach that strengthens traceability and onboarding checks, without creating the broader legal status Chadha is seeking.
Tax enforcement agencies have also raised challenges tied to the structure of crypto markets themselves. Income Tax Department officials told lawmakers that decentralized exchanges, anonymous wallets, and cross-border transactions complicate enforcement.
Those officials also noted that no loss offsetting or tax-loss harvesting is allowed, limiting the ability of traders to reduce tax bills by netting gains against losses. The restriction can shape how traders structure their activity, particularly in volatile markets where losses can be frequent.
Regulatory oversight remains split across agencies, with no single regulator yet in charge. The Securities and Exchange Board of India has been in discussions with the Finance Ministry and the Reserve Bank of India to supervise exchanges.
Under that division of responsibilities, the RBI handles foreign investment and cross-border issues, leaving core oversight questions for exchanges under discussion. The talks took place ahead of Union Budget 2026-27, but the overall structure remains unresolved.
Chadha’s call for a regulatory sandbox and asset class status sits within this unsettled architecture, as the government relies on a tax framework and compliance guidelines without setting out a unified rulebook. He argued that bringing crypto into a clearer legal category would help prevent offshore leakage and startup exits.
While lawmakers debate the next steps, cryptocurrencies remain legal to hold and trade via compliant exchanges as VDAs under tax law, per Supreme Court precedent. That status means the activity is permitted under the existing tax treatment, even if broader regulatory recognition and investor protections remain absent.
Stablecoins, however, remain particularly contentious in India’s policy debate. RBI Deputy Governor T. Rabi Sankar opposed stablecoins and stated in December that they do not qualify as sovereign currencies.
That stance has fed into broader questions about how India would treat crypto tokens that aim to track the value of fiat currencies, and whether stablecoins should face different rules from other VDAs. Chadha’s remarks placed stablecoins alongside cryptocurrencies in his call for legal status, but the RBI’s public opposition highlights the divide.
India’s legislative efforts have also remained stalled. A 2021 crypto bill remains postponed, leaving the country without the kind of comprehensive statute that would define licensing, market conduct rules, custody standards, and consumer protections.
The Supreme Court has criticized the lack of guidelines, adding pressure for clearer policy even as the sector continues to operate under taxation and compliance directives. The Ministry of Finance has not commented.
Chadha argued that a sandbox could offer a practical route to structured oversight even in the absence of a full bill, allowing regulators to test guardrails while the market remains active. He presented regulation as a way to keep innovation in India, rather than forcing entrepreneurs and traders to rely on offshore platforms.
The debate is also shaped by the scale of taxable activity implied by the market data Chadha cited. With 72.66% of India’s $5.60 billion trading volume occurring offshore, he argued that domestic rules could bring more volume under Indian oversight and taxation.
At the same time, his remarks pointed to a tension at the core of India’s current approach: a heavy tax regime that treats crypto transactions as a significant revenue source, alongside the absence of formal recognition, investor protection, and a dedicated anti-money laundering framework tailored to the asset class.
Chadha’s criticism also intersected with the practical burden of the existing structure for ordinary investors, who must account for 30% taxation on gains and a 1% TDS on transfers. Those taxes apply regardless of how long the asset is held or the investor’s income slab.
With penalties for delayed or incorrect reporting set to apply from April 1, 2026, scrutiny is likely to intensify on how individuals report crypto activity under the Income Tax Act. The policy mix leaves India with strict taxation and expanding compliance demands, while still debating the legal status and regulatory structure Chadha urged.
His push adds momentum to calls for a clearer national framework that defines how crypto businesses should operate, how platforms should be supervised, and how investors should be protected. For now, India’s rules remain a blend of taxation, compliance checks, and agency discussions, with Chadha pressing for a more explicit legal foundation.
Raghav Chadha Urges Legal Status for Crypto to Boost Innovation in India
MP Raghav Chadha is pushing the Indian government to establish a clear regulatory framework for cryptocurrencies. He highlights a policy contradiction where the state taxes crypto heavily while withholding legal recognition. This environment has caused a significant brain drain and capital flight, with many startups moving offshore. Chadha proposes a regulatory sandbox to protect investors and retain the multi-billion dollar industry within India’s borders.
