As India pilots its central bank digital currency (e-rupee) amid stringent crypto taxes, this article explores how CBDCs could address tax compliance challenges, streamline reporting, and transform the handling of digital asset taxation in the country’s evolving financial landscape.
The Rise of India’s Digital Rupee
In December 2022, the Reserve Bank of India (RBI) launched the pilot for the digital rupee, known as the e-rupee, aiming to usher in a new era of financial transactions through blockchain technology. This digital alternative to physical currency is expected to modernize the Indian financial system by offering a secure and efficient payment mechanism for both wholesale and retail transactions.
The integration of the e-rupee has gained momentum, with fintech firm Cred pioneering access as early as January 2025. Through its partnership with YES Bank, Cred has facilitated frictionless transactions for users, drawing attention to the potential of CBDCs in enhancing digital finance infrastructure. The RBI also initiated a pilot for tokenizing certificates of deposit in October 2025, with Chief General Manager Suvendu Pati noting,
Risks in asset tokenisation are manageable and can be addressed through regulatory guardrails. Suvendu Pati
This approach signals a commitment to harnessing technology while ensuring safety protocols are in place.
Crypto Tax Challenges and Market Shifts
The landscape of cryptocurrency taxation in India has been fraught with challenges since the introduction of a 30% tax on crypto gains and a 1% Tax Deducted at Source (TDS) in 2022. These measures have led to a sharp decline in domestic trading volumes, forcing many investors to seek more favorable conditions on offshore platforms. Between February and October 2022, approximately ₹32,000 crore worth of crypto trade migrated from Indian exchanges to foreign counterparts, underscoring the need for a reassessment of tax policies.
The Web3 industry is now fervently advocating for relief from the burdensome 1% TDS, arguing that high taxation stifles growth and deters innovation in a sector that could fuel India’s digital economy. Industry leaders are calling for a balanced approach that fosters investment without compromising regulatory integrity. As noted by experts, understanding the tax implications of crypto investments is vital for domestic traders aiming to navigate this complex landscape responsibly.
Regulatory Debates and Cautious Approaches
The ongoing regulatory discourse in India is marked by contrasting views between the Securities and Exchange Board of India (SEBI) and the RBI regarding crypto oversight. While SEBI proposes a multi-regulatory approach to govern crypto trading, the RBI maintains a more cautious perspective, identifying potential macroeconomic risks associated with private digital currencies. A government document cautions that
Regulating cryptocurrencies in India would grant them ‘legitimacy’, and ‘may cause the sector to become systemic. Government Document
This highlights the delicate balance policymakers must strike between innovation and risk management.
In efforts to enhance regulatory clarity, discussions are underway to establish a Virtual Digital Asset Regulatory Authority, akin to SEBI, to oversee cryptocurrency transactions and ensure compliance. By considering various regulatory frameworks, India aims to position itself favorably within the global digital assets ecosystem while safeguarding financial stability.
Global Influences and India’s Evolving Stance
India’s approach to cryptocurrency regulation is evolving, spurred on by international developments. The country’s government is taking note of positive policy shifts, particularly in the United States and the European Union, where initiatives like the Markets in Crypto-Assets Regulation aim to clarify the legal status of digital currencies. Economic Affairs Secretary Ajay Seth stated,
More than one or two jurisdictions have changed their stance towards cryptocurrency… we are having a look at the discussion paper once again. Ajay Seth
This ongoing reevaluation signifies India’s openness to adapting its regulatory framework amidst rapidly changing global dynamics.
As stablecoin adoption gains traction worldwide, particularly with dollar-pegged currencies, India finds itself reassessing the potential impact on its payment systems, including the prevalent Unified Payment Interface (UPI). The consideration of how to integrate CBDCs with existing infrastructure presents both challenges and opportunities for India’s financial landscape.
The Future: CBDCs in Tax Handling and Innovation
Proponents of CBDCs envision that these digital currencies could revolutionize tax reporting and compliance in India. CBDCs could facilitate real-time transaction tracking, thereby simplifying tax reporting processes and minimizing evasion through transparent ledger systems. The programmable features of the e-rupee are also being explored for their potential to automate tax deductions, thereby improving compliance among users.
Kunal Shah of Cred remarks,
Our goal is to make e-rupee transactions frictionless and drive its adoption, Kunal Shah
reflecting a broader ambition to integrate the digital rupee into everyday transactions. This could provide a robust solution to the tax challenges currently faced by traditional cryptocurrency frameworks, promoting financial inclusion while addressing security and volatility concerns.
Rethinking Taxation for a Digital Age
As India stands at the crossroads of digital finance and regulatory reform, the successful implementation of CBDCs could pave the way for a more coherent approach to crypto taxation. Innovative use-cases and robust regulatory frameworks can potentially attract institutional investment while simultaneously fostering a safer digital asset environment. Engaging stakeholders in collaborative discussions can facilitate a balanced approach that accommodates both innovation and fiscal responsibility.
The journey towards establishing a robust framework for cryptocurrency taxation in India is still unfolding, but with the introduction of CBDCs, the nation is poised to unlock new opportunities for efficiency, transparency, and financial evolution. As investors and regulators alike continue to navigate this complex landscape, it is clear that the future of digital currencies in India is bright, provided the right policies are put in place.
