Scope of CBDT Consultation
On behalf of the Government of India, the Central Board of Direct Taxes (CBDT) issued a detailed questionnaire to cryptocurrency exchanges, investors and industry experts on August 19, 2025. The objective is to gather empirical feedback ahead of drafting a unified Virtual Digital Asset (VDA) law and determining the appropriate regulatory authority, whether the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI) or a new specialized body.
Key Issues Under Review
- 1% TDS Rate: The CBDT is examining whether the current Tax Deducted at Source (TDS) rate on VDA transactions should be adjusted to align with global best practices and to mitigate offshore trading migration.
- Loss Offset Restrictions: Traders currently cannot offset crypto losses against gains. The board is considering whether to permit loss carry‐forwards, which could improve market liquidity.
- Regulatory Oversight: The consultation seeks views on supervisory frameworks, KYC/AML protocols and coordination among agencies to enhance compliance without stifling innovation.
- Trade Migration: India’s strict tax regime has prompted significant trading volume shifts to Dubai and other crypto‐friendly jurisdictions. Feedback is requested on reversing this trend.
Industry Response and Next Steps
Initial industry reactions highlight strong support for loss offsetting, citing it as essential for market depth and investor confidence. Exchanges have submitted data showing up to 20% volume migration offshore due to current tax structures. Stakeholder inputs are due by mid‐September. The CBDT plans to synthesize findings and recommend amendments to the Finance Ministry, with draft legislation expected later in 2025.
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