Indian Court sounds alarm on crypto’s economic impact amid rising tax revenue

An Indian High Court has voiced concerns about the potential economic impact of digital assets in India, cautioning that they convert legitimate currency into an obscure and 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. 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, continuing his fraudulent operations despite warnings.

The judge said that the charges were serious. He said that Verma had a lot of money and the alleged fraud was large. This meant that Verma might try to run away if he was found guilty.

The High Court’s decision follows soon after the Supreme Court of India strongly criticised the central government for its continued delay in creating rules for digital assets. Just weeks earlier, the Supreme Court had expressed serious concern over the lack of clear guidelines, warning that this had led to widespread misuse and financial irregularities. The court 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 a court hearing where a person from the state of Gujarat asked for bail. This person is accused of fraud involving digital assets in several Indian states. Although the petition was about individual charges, Justices Surya Kant and N. Kotiswar Singh used the opportunity to say that they were worried about the lack of clear rules in the digital asset sector.

The court reminded the central government that it had already asked for a complete policy nearly two years ago. While it acknowledged that banning digital assets entirely would be an impractical move given how important they are around the world, the court emphasised the need for basic rules as soon as possible.

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. 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.

“The upcoming phase of AI integration will be deeper,” Agrawal noted. “We are now getting higher quality data from reporting entities, allowing us to run more targeted analytics and detect evasion with greater accuracy.”

To foster voluntary compliance, the Income Tax Department has been proactively sharing taxpayers’ financial data with them, leading to the filing of over 11 million updated tax returns and generating an additional ₹11,000 crore (about $1.33 billion) in revenue since April 2022.

Agrawal said that the quality of data shared by foreign agencies under tax information exchange agreements has improved, which helps track people with secret foreign assets. He also said that the department is looking at ways to monitor new and 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.

Although India has not yet passed a law to govern digital assets, it introduced a strict tax regime in April 2022. It includes a flat 30% tax on profits from VDAs, with no way to offset losses against other income or carry them forward. A 1% tax is also being 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, 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 proposed 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.

“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.

The framework puts important protections for digital asset users first, including the right to hold their own assets, access to open protocols, and financial privacy. It also deals with important issues like unclear tax rules, different regulations in different places, and the lack of a special digital asset authority. Importantly, the plan includes setting up a special Bitcoin reserve for India.

A key part of the Act is a recommendation for a new regulatory body, the Crypto Assets Regulatory Authority (CARA). This body will be in charge of overseeing the digital asset industry following global best practices. The COINS Act is based on regulatory models such as the European Union’s Markets in Crypto-Assets Regulation (MiCA) and Singapore’s sandbox. It is expected to meet India’s specific legal and economic challenges, which are urgently needed to regulate digital assets in the country.