What happened? India’s long-running debate over crypto regulation moved back into Parliament this week, as the Standing Committee on Finance held discussions with Binance, WazirX and ZebPay on the future of virtual digital assets.
The May 20 sitting, listed by the Lok Sabha Secretariat under the subject “A Study on Virtual Digital Assets (VDAs) and Way Forward,” brought together crypto exchanges, the International Financial Services Centres Authority, the Ministry of Finance and the Ministry of Corporate Affairs.
The hearing signals that India is still searching for a regulatory model for crypto, four years after introducing a tax framework for digital assets.
It also comes as lawmakers weigh three competing priorities: tax collection, investor protection and the risk of capital moving offshore.
According to The Economic Times, committee chairman Bhartruhari Mahtab said the panel found it “alarming” that thousands of crores of rupees were being invested in VDAs, with money flowing outside India. He said the committee was studying different global approaches, including regulation in the US, UK and EU, bans such as China’s, and containment-led models in countries such as Japan and Brazil.
India currently taxes crypto but has not enacted a dedicated law governing the asset class.
That contradiction was reportedly raised inside the committee with some members questioning how the government can impose a 30% tax when there is still no comprehensive crypto policy.
The result is a policy middle ground.
Crypto is not banned in India. But it is also not regulated like securities, commodities, payments instruments or banking products.
Instead, India has built a framework around taxation, anti-money laundering compliance and enforcement against non-compliant offshore platforms.
That approach has given the state visibility over transactions, while leaving investors without a clear statutory protection regime.
The Finance Committee’s meeting suggests lawmakers may now be trying to decide whether that patchwork is enough.
Taxation remains the centre of India’s crypto policy
India’s current crypto framework began with the 2022-23 Union Budget.
The government imposed a 30% tax on income from the transfer of virtual digital assets, along with cess and surcharge. It also introduced a 1% tax deducted at source on crypto transactions above prescribed thresholds.
The tax regime was designed to create a reporting trail.
But it also became one of the industry’s biggest points of contention.
Crypto exchanges and industry groups have repeatedly argued that the 1% TDS pushed trading activity toward offshore platforms and peer-to-peer channels. That made it harder for Indian authorities to monitor transactions, even as the tax was meant to improve visibility.
The Finance Committee’s latest discussion appears to reflect the same tension.
Mahtab said it was necessary that income generated from VDA investments should be taxed within India, especially when platforms or entities may be based outside the country.
That perspective is worth noting. The issue is no longer only whether crypto should be allowed. It is also about where trading occurs, who captures the data, and whether India can tax the activity without driving it into less visible markets.
AML rules have become the main regulatory anchor
India’s strongest crypto oversight mechanism today is the Financial Intelligence Unit.
The Ministry of Finance said in October 2025 that VDA service providers were brought under the anti-money laundering and counter-terror financing framework in March 2023. It said VDA platforms operating in India, whether offshore or onshore, must register with FIU-IND and comply with obligations under the Prevention of Money Laundering Act.
The government also made clear that the obligations are activity-based.
That means a platform does not need a physical presence in India to fall under Indian AML rules if it serves Indian users.
As of October 2025, 50 VDA service providers had registered with FIU-IND, according to the same Ministry of Finance release. The FIU had also issued notices to 25 offshore VDA service providers for non-compliance and sought takedown action for platforms found operating illegally without complying with PMLA provisions.
This has become India’s de facto crypto regulatory perimeter.
It focuses on KYC, record-keeping, suspicious transaction reporting and compliance by intermediaries.
But it does not answer broader questions about market conduct, custody standards, segregation of client assets, conflict of interest, token listings, exchange insolvency or user compensation after hacks.
That gap is one reason the Finance Committee’s study could be significant.
Investor protection is no longer theoretical
The presence of WazirX in the committee discussion is notable because India’s crypto debate is no longer abstract.
In July 2024, WazirX suffered one of the largest crypto exchange breaches linked to Indian users. The incident froze access for many customers and triggered a prolonged restructuring process.
The episode exposed a core weakness in India’s crypto policy architecture.
Users were trading on a large domestic-facing platform, but when the platform faced a custody and solvency crisis, the recovery process depended heavily on cross-border restructuring proceedings rather than a dedicated Indian crypto investor protection regime.
That matters for lawmakers.
A tax-and-AML-only framework can help the state monitor activity. It does not necessarily protect users when an exchange fails, is hacked, mismanages custody, or operates through complex offshore corporate structures.
The Ministry of Finance has itself warned that crypto products and NFTs are unregulated and can be highly risky, with no regulatory recourse for losses from such transactions.
That warning now sits uneasily beside India’s large retail participation.
Chainalysis ranked India first in its 2025 Global Crypto Adoption Index, followed by the US, Pakistan, Vietnam and Brazil. The firm said its index measures grassroots crypto adoption using on-chain and off-chain data across 151 countries.
India, in other words, is not regulating a fringe market.
It is dealing with a mass retail and increasingly institutional asset class that has already moved faster than the law.
RBI’s caution still shapes the debate
A major obstacle to a full crypto framework remains the Reserve Bank of India’s long-standing concern about private digital assets.
According to The Economic Times, Mahtab said after the meeting that the RBI is opposed to allowing regulation or permission for virtual digital assets to operate in India.
That position has historically shaped India’s cautious approach.
The central bank has raised concerns around monetary sovereignty, financial stability, consumer protection and the possibility of crypto becoming a channel for illicit flows or speculative excess.
The government, however, has avoided an outright ban.
Instead, it has chosen taxation, AML oversight and selective enforcement against offshore firms.
The Finance Committee’s study may therefore become a forum for reconciling two different views inside the state.
One view treats crypto primarily as a systemic risk to be contained.
The other accepts that usage is already widespread and argues that regulated domestic platforms may be safer than pushing activity offshore.
Industry sees engagement as progress
Avinash Shekhar, co-founder and CEO of Pi42, said the formal engagement with major global and domestic platforms is an important step for the sector.
“India bringing major global and domestic crypto platforms into formal policy discussions is a significant step for the industry’s long-term evolution,” Shekhar said in a statement shared with AlexaBlockchain.
“It signals that the conversation is gradually moving from uncertainty toward structured engagement between policymakers and the ecosystem,” he added.
He said India already represents one of the world’s largest digital asset user bases, making regulatory clarity important for investor protection, market transparency and responsible innovation.
“These discussions can help policymakers better understand how areas such as compliance, custody, taxation, cybersecurity, and cross-border transactions function in practice,” Shekhar said.
He added that a balanced framework could strengthen confidence among users, institutions and businesses, while encouraging more innovation and liquidity to remain within regulated Indian platforms rather than moving offshore.
That is the industry’s central argument.
If India wants tax revenue and risk oversight, it may need to make compliant domestic trading viable.
No public exchange statements found after meeting
There was no official post-meeting statements from Binance, WazirX or ZebPay executives at the time of writing. Binance, WazirX or ZebPay did not immediately respond to a requests for comment about the discussion with the committee.
The Lok Sabha Secretariat’s public X account said the Standing Committee on Finance, chaired by Bhartruhari Mahtab, held discussions with representatives of ZebPay, Binance and WazirX.
The absence of detailed public comments from the exchanges leaves open several questions.
It is not yet clear what specific recommendations the platforms made on taxation, TDS, custody, cybersecurity, offshore flows or investor protection.
It is also not clear whether the committee will seek written submissions from the exchanges before making recommendations.
How crucial is this meeting? And, what does this indicate?
The meeting is highly crucial because it shows India’s crypto policy is entering a more structured phase.
For years, the country’s position has been defined by three ideas: high taxes, AML compliance and regulatory caution.
That approach has reduced the likelihood of a sudden policy embrace.
But it has not resolved the core problem.
Millions of Indians continue to use crypto. Domestic exchanges want clearer rules. Offshore platforms remain attractive to users seeking liquidity and product access. Regulators remain worried about capital flight, tax evasion, fraud and systemic risk.
The Finance Committee now appears to be examining whether India should continue with containment or move toward a clearer licensing and conduct framework.
Such a framework could include stronger custody norms, capital requirements, mandatory proof of reserves, cyber-risk standards, exchange governance rules, token due diligence, user asset segregation and clearer enforcement powers.
It could also revisit the tax design.
A lower TDS rate, better reporting architecture and stricter FIU compliance could potentially keep more trading activity on regulated platforms while preserving transaction visibility for the tax department.
But the political threshold remains high.
Any reform must satisfy the RBI’s concerns, the finance ministry’s revenue objectives, law enforcement’s AML priorities and the industry’s demand for workable rules.
That is a difficult balance.
Yet the latest parliamentary hearing shows the debate has moved beyond whether crypto exists in India.
The question now is whether India wants crypto activity to remain taxable but legally uncertain, or whether it wants to bring the market into a fuller regulatory perimeter.
The above article “Is India Moving From Crypto Uncertainty Toward a Clearer Policy Framework?” was first published on AlexaBlockchain. Read the complete article here: https://alexablockchain.com/is-india-moving-from-crypto-uncertainty-toward-a-clearer-policy-framework/
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Image Credits: Lok Sabha Secretariat, Shutterstock, Canva, Wiki Commons
