India's Encryption Regulation Trends: Analysis of New Rules in 2025 and Market Impact

The cryptocurrency regulatory framework in India is continuously evolving. The 2025 budget proposal introduces stricter reporting requirements and enhanced regulatory mechanisms based on the 30% tax implemented in 2022. The Income Tax Act's Section 115BBH officially included cryptocurrency assets in the tax system for the first time in 2022, but it does not allow traders to offset losses against other income. The new Section 285BAA added to the Income Tax Act in the 2025 budget proposal further expands the regulatory scope, requiring specific institutions to report cryptocurrency transactions within set deadlines. At the same time, the government has broadened the definition of cryptocurrency assets to include all assets based on distributed ledger technology to adapt to industry development. These changes coincide with Bitcoin's rise due to favorable news from the U.S. elections, but the market still faces regulatory uncertainties and volatility risks.

In recent years, the regulatory attitude of countries around the world towards encryption currency has gradually shifted from excessive regulation to a more flexible, prudent, and adaptable approach. This shift is mainly driven by the rapid global adoption of encryption assets. However, India, as one of the most active countries in global encryption trading and trading volume, still maintains strict regulations and harsh tax policies, lagging behind the international market's friendly regulatory trend towards encryption assets.

India's encryption tax system is considered one of the most stringent in the world, which not only undermines investor confidence but also severely hinders the innovation and application development of blockchain technology. Despite repeated calls from various sectors of the market to relax tax policies, the Indian government's position has remained unwavering. In the 2025 fiscal budget proposal and the revision of the Income Tax Act, the Indian government has made some adjustments to the current tax system. This article will delve into India's latest cryptocurrency tax rules and analyze whether they are a positive signal for promoting market transparency or further repression of encryption assets.

Evolution of India's Encryption Regulatory Framework

India's cryptocurrency regulatory policy has undergone an evolution from strict restrictions to gradual adjustments. In the early days, the Reserve Bank of India held a highly skeptical attitude towards cryptocurrencies, even issuing a notice in 2013 warning investors about the speculative risks of crypto assets. In 2018, the Reserve Bank of India further prohibited banks from conducting transactions with crypto-related enterprises, attempting to limit market development through financial means. However, this ban faced strong opposition from industry bodies and market participants and was ruled unconstitutional by the Supreme Court of India in 2020.

The 2022 financial budget proposal for the first time includes cryptocurrencies and other encryption assets within the scope of legal regulation, establishing a series of tax policies, including a 30% capital gains tax on profits from encryption assets and a 1% withholding tax on transaction amounts. Although the introduction of this tax system provides a legal basis for tax compliance to a certain extent, its high tax burden and strict regulatory requirements remain controversial.

The introduction of the 2025 fiscal budget did not fundamentally reform the current tax system, but rather strengthened regulation in the areas of encryption tax reporting and information disclosure, with plans to officially take effect in April 2026.

What do the new tax rules mean?

Despite the increasingly lenient regulatory policies in multiple jurisdictions worldwide, India still maintains the world's strictest taxation regime on encryption. Although the 2025 budget proposal and the amended Income Tax Act have made adjustments to the tax rules, they have overall failed to change the current restrictive situation regarding cryptocurrency trading. Currently, India imposes a tax rate of 30% on profits from crypto assets, which is extremely high on a global scale. Furthermore, this tax system does not allow investors to deduct losses or operating costs, leading many crypto businesses and investors to relocate to more friendly jurisdictions. The 2025 budget proposal also further expands the definition of crypto assets, bringing all blockchain technology-based crypto assets into the tax scope. However, this definition still does not categorize different types of crypto assets or distinguish their technological uses and economic properties, resulting in increased uncertainty in regulatory compliance.

In addition, the Income Tax Act imposes stricter penalties for unreported encryption assets, classifying them as "unreported income" and imposing fines of up to 70%, without any exemptions or reduction policies. This level of punishment reflects the Indian government's high-pressure attitude towards encryption assets, and more importantly, the Indian government's definition of encryption assets is overly broad, resulting in a heavy tax burden for Indian encryption users.

In such a harsh tax environment, the large-scale migration of domestic encryption companies in India has become a trend, while the continuous growth of trading volume in the encryption market reflects the huge divergence between regulatory policies and market realities. Although the government is trying to curb the encryption market through high tax policies, the younger generation of investors in India still views encryption assets as a primary or supplementary source of income.

Impact on Investors and the Market

India's strict tax policies have undoubtedly increased the difficulty for encryption companies to operate in the local market. Although the encryption industry in India still maintains a strong vitality, other regions with more friendly regulatory environments are attracting companies to relocate. Currently, the Indian encryption market still benefits from the rise in encryption asset prices. Research predicts that by 2035, the scale of the Indian encryption market is expected to grow from the current $2.5 billion to $15 billion. However, excessively stringent regulations may prompt capital in the Indian encryption industry to flow to other countries, leading to reduced tax revenue for the Indian government, limited market innovation, and affecting India's competitiveness in the global digital financial ecosystem.

Another major challenge in the Indian encryption market is the complexity of compliance and legal uncertainty. Although the Indian government proposed the establishment of a comprehensive encryption regulatory framework as early as 2021, the bill is more inclined to prohibit Bitcoin and other cryptocurrencies, and promote the digital currency of the Reserve Bank of India, ultimately leading to the bill being delayed. In this regulatory environment, market participants face sudden policy changes and compliance risks, hindering long-term investments. Businesses and investors are concerned about the possibility of sudden government crackdowns or additional tax burdens in the future, which could affect business decisions and market vitality.

In conclusion, although the Indian government has strengthened regulation on the grounds of financial stability, the strict tax system and ambiguous regulatory framework are seriously restricting the innovation capacity of India's encryption market and affecting India's global competitiveness. The Indian government needs to find a balance between investor protection and market development, reduce tax rates, clarify asset classification, and reduce legal uncertainty to enhance market confidence and attract more capital. If India continues to maintain its current regulatory position, it may miss economic opportunities in the fields of blockchain and digital finance; on the contrary, India still has the potential to become an important player in the global encryption market.