Raghav Chadha asks Centre to legalise VDAs: What it means, why it matters

Aam Aadmi Party (AAP) MP Raghav Chadha on Tuesday urged the government to legalise virtual digital assets (VDAs) in India, such as cryptocurrency, stablecoin, and tokenised assets, to keep the talent, innovation and funds within the country.

 

"India taxes VDAs like they are legal. But regulate it like they are illegal," Chadha said in Rajya Sabha. The AAP leader highlighted that the government taxes VDAs at 30 per cent capital gain tax, yet offers no legal recognition, no investor protection, and no dedicated anti-money laundering (AML) framework.

 

Here's a look at what VDAs are, how they are taxed, and what laws regulate them in India and other countries.

What are virtual digital assets?

A VDA is a type of asset that is owned in digital form and recorded on a blockchain. Blockchain technology helps prove that the asset is real and who owns it. Many of these assets are non-fungible, which means they are unique and cannot be replaced by something else. Because of this, they can be bought, sold or transferred to another person.

 

In the Union Budget 2022–23, the government clearly defined VDAs such as cryptocurrencies and NFTs under the Income Tax Act for the first time. However, mobile app subscriptions, ecommerce purchases, OTT platform subscriptions, regular digital currency, and Central Bank Digital Currency (CBDC) were excluded.

How are VDAs taxed in India?

Under Section 115BBH of the Finance Act, 2022, if a person earns income from selling or transferring a VDA, that income is taxed at a flat rate of 30 per cent. This tax is charged separately. Then, the rest of the person’s income is taxed as per normal income tax rules.

 

While calculating profit from VDAs, no deduction is allowed for any expense except the cost of buying the asset. No other expense, allowance or loss can be claimed. If a person makes a loss from selling a VDA, the loss cannot be adjusted against any other income. It also cannot be carried forward to future years.

 

In addition, a 1 per cent Tax Deducted at Source (TDS) must be deducted on the total value of the VDA transaction. This applies whether the payment is made in cash or in kind.

Laws governing VDAs in India

Cryptocurrencies and other VDAs are not legal tender in India. This means they cannot be used as official money for payments. However, buying, selling and holding these assets is legal.

 

Responding to a question in the Lok Sabha in July last year, the Minister of State in the Ministry of Finance Pankaj Chaudhary said the crypto assets sector, including NFTs, is currently unregulated in India.

 

However, VDAs have been brought under the Prevention of Money Laundering Act, 2002 (PMLA). This means transactions involving VDAs must follow anti-money laundering rules. Some aspects of the VDA sector are also governed by the Information Technology Act, 2000, the minister said.

 

In addition, companies that hold crypto assets must disclose these holdings in their financial statements. This rule was added through an amendment to Schedule III of the Companies Act, 2013, by a notification dated March 24, 2021, and has been effective from April 1, 2021.

How do other countries treat VDAs?

While India has maintained a cautious approach to VDAs, several other countries, like Japan and South Korea, have progressive policies in place. Here's how different countries approach VDAs and crypto:

 

Japan: It treats cryptocurrencies as legal property under the Payment Services Act. Crypto exchanges must register with the Financial Services Agency (FSA) and follow strict rules on custody, reserves, and consumer protection. The government has also considered tax reforms to support crypto businesses while keeping investor safeguards in place.

 

South Korea: It requires crypto exchanges and virtual asset service providers to register with the Korea Financial Intelligence Unit (KFIU) under the Financial Services Commission. The Act on the Protection of Virtual Asset Users created formal rules and consumer safeguards.

 

United States: The US does not have a single crypto law. Instead, existing regulators like the SEC and CFTC oversee different parts of the market. The SEC has filed cases against major crypto companies such as Ripple, Coinbase, and Binance.

 

China: China has one of the strictest approaches to crypto. The People’s Bank of China bans crypto-related business activities, citing financial risks. Bitcoin mining was banned in 2021, and cryptocurrency trading is also prohibited. Instead of allowing private cryptocurrencies, China promotes its own central bank digital currency, the digital yuan (e-CNY), as a government-controlled alternative.

How lack of regulation is impacting India

Chadha said that the lack of clear regulation has pushed nearly 120 million Indians to invest through overseas platforms. As a result, about ?4.8 trillion in VDA trading has moved outside India, 73 per cent of the country’s crypto trading volume now takes place on foreign exchanges, and around 180 Indian crypto startups have shifted abroad.

 

He said the solution is to ensure compliance within India and give VDAs clear recognition as an asset class. A well-defined domestic regulatory sandbox, backed by strong AML safeguards, can bring trading activity back to India, protect investors, improve compliance, and generate an estimated ?15,000–20,000 crore in annual tax revenue, he said.