Indian MP Raghav Chadha Urges Crypto Legalization to Stop Offshore Flight
- Chadha says India taxes crypto as legal but regulates it as illegal, driving investors offshore.
- Over ₹4.8 lakh crore in crypto trading and 73% of volumes have shifted outside India.
- Clear VDA rules and AML frameworks could add ₹15,000–20,000 crore yearly in tax revenue.
A sharp intervention in India’s Upper House on February 10 has added fresh momentum to the country’s long-running crypto policy debate. Per reports, Rajya Sabha MP Raghav Chadha used the ongoing budget session to renew calls for the legalisation and structured regulation of virtual digital assets, warning that policy ambiguity is driving capital and talent out of India.
Chadha, a member of the Aam Aadmi Party, argued that India has created a contradictory system in which digital assets are taxed aggressively while remaining undefined in law. That gap, he said, is no longer theoretical. It is already reshaping where Indian investors trade and where startups choose to build.
Taxed Like Legal Assets, Treated Like Prohibited Ones
Under amendments introduced through the Finance Act of 2022, profits from virtual digital assets attract a flat 30% tax, alongside a 1% tax deducted at source on every transaction. Those provisions remain unchanged in 2026.
Yet cryptocurrencies and stablecoins still lack formal legal recognition, licensing requirements, or a dedicated investor protection framework. There is no tailored regulatory structure for custody, disclosures, or market conduct. Chadha described this mismatch as a policy paradox.
<blockquote> “India taxes VDAs (virtual digital asset) like they are legal,” he told lawmakers, “but regulate it like they are illegal.” </blockquote>
According to Chadha, this has left both investors and firms operating in a grey zone, compliant on paper through taxation but exposed in practice due to the absence of clear rules.
Offshore Shift Accelerates
Chadha further pointed to what he described as mounting evidence of capital flight. He cited estimates suggesting that roughly ₹4.8 lakh crore in VDA trading volume has moved to offshore platforms. Around 73% of India-linked crypto trading, he added, now occurs outside the country.
He also claimed that nearly 12 crore Indian users continue to trade through overseas exchanges, while close to 180 crypto startups with Indian roots have relocated abroad, largely to jurisdictions offering regulatory clarity.
Industry participants have raised similar concerns in recent months. High transaction taxes, combined with regulatory uncertainty, have reduced onshore liquidity and discouraged market-making activity. As a result, several reports suggest that domestic exchanges have struggled to retain volume since the TDS regime took effect.
A Case for Structured Regulation
Chadha’s remarks went beyond criticism. He outlined what he described as a compliance-first approach aimed at reversing the offshore drift. His proposals included granting VDAs formal asset-class status, introducing a domestic regulatory sandbox, and building licensing and investor protection standards alongside strong anti-money laundering controls.
In his view, regulation would bring activity back under Indian oversight rather than push it into less transparent channels. “Prohibition is not protection,” Chadha said. “Regulation is protection.”
He argued that a clear framework could improve compliance while unlocking ₹15,000 to ₹20,000 crore in annual tax revenue, driven by higher onshore participation and reporting.
Government Caution Remains
The comments come as policymakers continue to weigh the risks and benefits of deeper crypto integration. Officials have repeatedly stressed concerns around financial stability, consumer risk, and illicit finance.
In a separate statement, the Central Board of Direct Taxes said authorities are closely monitoring crypto transactions for compliance, while maintaining a cautious stance on full-scale regulation. For now, however, oversight remains fragmented, spread across tax enforcement and reporting obligations.
Related: American Fintech Council Backs Fed Payment Account Opening Access for Crypto Firms
A Policy Crossroads
With the Union Budget 2026–27 under debate and global crypto regulation advancing elsewhere, pressure is building on New Delhi to clarify its position. Jurisdictions such as Singapore and the UAE have already rolled out defined regulatory regimes, attracting firms and capital in the process.On the other hand, Chadha’s intervention does not settle the debate. But it sharpens the contrast between India’s tax-heavy approach and its unresolved regulatory posture. As lawmakers weigh their next steps, the question is no longer whether crypto activity exists in India, it’s whether it will continue to operate from outside its borders.
