India is likely to move toward a more balanced cryptocurrency regulatory framework in the coming years, according to GetBit Founder Abhay Agarwal, who believes the current tax structure was introduced during a period when policymakers were still trying to understand a rapidly evolving industry.
Speaking in an interview with Coinpedia, Abhay said the existing 30% tax on crypto gains remains high compared to most other asset classes, but emphasized that the larger challenge is the 1% Tax Deducted at Source (TDS) imposed on every crypto transaction.
“The 30% tax on gains is high compared to most other asset classes, but the bigger issue is the 1% TDS. It effectively acts as a liquidity tax and disproportionately impacts active market participants.”
According to Abhay, the current framework served its purpose by helping regulators monitor the sector. However, as regulatory visibility improves and the industry matures, he expects policymakers to revisit the tax structure. He believes a reduction in TDS is likely to be the first major change, potentially within the next two to four years.
Liquidity Migration Remains the Biggest Consequence
Discussing the impact of the 1% TDS, Abhay identified the migration of liquidity away from India as the most significant consequence.
He explained that financial markets function most efficiently when buyers and sellers can transact without excessive friction. The 1% TDS significantly increases trading costs, particularly for market makers and active participants, prompting a large share of trading activity to move offshore shortly after the rule was introduced.
“Liquidity attracts talent, capital, entrepreneurs, developers, and investors. When liquidity leaves, the broader ecosystem suffers.”
Abhay noted that while India continues to produce world-class talent in the digital asset sector, much of the innovation has shifted outside India’s regulatory perimeter due to the current environment.
Offshore Migration Raises Regulatory Challenges
Abhay acknowledged that the current tax and regulatory structure has encouraged traders and investors to move toward offshore exchanges.
According to him, capital naturally seeks the most efficient markets, and significantly higher trading costs in one jurisdiction often push users to look elsewhere. He argued that while regulators seek greater oversight, excessive friction can sometimes have the opposite effect by driving activity outside regulated domestic platforms.
He added that India would benefit more if users, businesses, and liquidity remained onshore within a compliant framework, as that would support investment, job creation, consumer protection, and constructive engagement between regulators and the industry.
Stablecoins Could Serve as a Gateway to Digital Assets
Abhay described stablecoins as an important bridge technology for the future growth of crypto adoption in India.
He noted that stablecoins often provide users with their first experience of digital assets by enabling faster payments, lower-cost transfers, and global access to dollars through a smartphone. In countries facing inflation or currency instability, stablecoins have already emerged as meaningful financial tools.
At the same time, he emphasized that stablecoins and Bitcoin serve different purposes within the ecosystem. While stablecoins primarily function as payment and settlement instruments, Bitcoin acts as a savings technology and long-term store of value.
INR-Backed Stablecoin Could Expand Rupee Utility
On the possibility of an INR-backed stablecoin, Abhay said such an initiative could potentially strengthen the rupee’s role in cross-border payments and trade settlements.
He pointed to India’s success with UPI as evidence of the country’s leadership in digital payments and suggested that a rupee-backed stablecoin could extend that innovation by enabling faster settlement, greater programmability, and lower transaction costs.
However, he noted that broader economic factors, trade relationships, and global confidence in the currency would ultimately determine whether international demand for the rupee increases significantly.
Regulatory Clarity Should Be the Top Priority
Looking ahead, Abhay said regulatory clarity should be the primary focus for Indian policymakers over the next two to three years.
“Businesses can adapt to almost any framework if the rules are clear and stable. Uncertainty is often more damaging than regulation itself.”
He also called for a review of the 1% TDS framework to help restore liquidity on compliant Indian platforms.
Additionally, Abhay argued that Bitcoin should be treated differently from many other digital assets due to its unique characteristics, including the absence of an issuer, central management team, and its fixed monetary policy.
“India has an opportunity to become a global leader in Bitcoin infrastructure, custody, mining, payments, and financial innovation.”
According to Abhay, India already possesses the talent required to compete globally, and a supportive regulatory environment could help bring innovation back onshore while enabling the country to participate more actively in the next phase of global financial infrastructure.
