Burgeoning Market with Big Numbers

If there was an aerial view of the crypto market in India, it would show a blooming ecosystem in the country. A recent report by Triple-A shows that India has approximately 103 million cryptocurrency owners, nearly 7.23% of its population.

The future, too, offers promises. According to Grant Thornton Bharat (2024), the market size may expand from $2.5 billion in 2024 to more than $15 billion by 2035, indicating a CAGR of approximately 18.5%.

Also, Chainalysis 2023 Global Crypto Adoption Index puts India at number one, based on grassroots crypto adoption.

The Dark Cloud: Harsh and Unclear Regulations

But a closer look reveals that the picture is not so rosy at all. The Indian government backs Web3 and blockchain with visible confidence — yet simultaneously imposes vague and overly harsh regulations.

Noticeably, India does not recognise crypto as a currency. In 2018, the Reserve Bank of India (RBI) issued a circular banning banks from dealing with crypto businesses. This was revoked in 2020 by the Supreme Court of India.

For almost 2 years, the crypto exchanges were kept away from traditional banking channels.

The Tax Blow That Shook the Industry

Another blow came in 2022, when the government announced a 30% flat tax on all crypto gains and 1% TDS on every crypto trade. This includes no relief even if the investor suffers a loss.

Crypto Rewards? Taxed Too

Many budding blockchain and Web3 entrepreneurs help people invest in their projects and in turn give them crypto rewards.

Taxation also applies to these rewards. It also includes staking rewards, airdrops, referral bonuses, interest/yield from DeFi platforms, tokens by DAOs or crypto projects. These reward-based methods are especially popular among non-traders in the crypto space.

Regulatory Ambiguity Hurts More Than It Helps

Taxation and crypto experts believe that the regulations are stringent with a lot of ambiguity such as double taxation, tax on notional income and no clarity and support from the government and authorities.

“Such regulations are harsh for honest investors, discourage innovation, and punish the risk-takers. This is not good for any market,” said an expert.

Why the Government Says It’s Pro-Regulation

Also, experts feel the government is not against innovations and latest technologies, and its pro-regulation approach is good for the public. It wants to save the common man from scams and losses. Also, the threats of money-laundering and terror funding cannot be overruled.

Enforcement Is Tightening

In recent developments, the Enforcement Directorate (ED) has started probing major exchanges and other platforms over alleged money laundering.

ED officials are closely working with some major world exchanges in tracking down the money launderers.

Users May Move to Grey Areas

While the government feels such moves can save retail and small investors from major losses and the country from threats, the fear may force market participants to move to decentralised exchanges, international apps and P2P transactions, feel the market experts.

India Isn't Alone in the Crackdown

India is not the only country with regulations. China, Egypt, Algeria and others have strict anti-crypto laws.

Final Thoughts: Over-Regulation May Backfire

Regulations may make or break a system. Depending on the nature of the regulation, it can help, hurt or reshape crypto. In the case of countries such as India, over-regulations come from fear and may force developed exchanges to not enter the country, investors to turn towards unregulated platforms, and talented developers to leave the country.

Decentralisation is the need of the hour. Clarity in taxation and laws and an open outlook towards new technologies will not only boost investor confidence but also attract overseas funds.