Why virtual digital assets like cryptocurrency or stable currency are taxed as legal assets but regulated as if they are illegal, AAP questioned Rajya Sabha in Parliament. He suggested that digital assets should be regulated and that investments that do not move offshore should be brought back into the country.

“Legalize virtual digital assets as an asset class,” Chadha said, adding that cryptocurrency is taxed at 30 percent for capital gains and 1 percent for TDS, but is somehow not recognized as an asset class.

He said this has led to a significant gap, which has led to no dedicated licensing laws, no investor protection, no dedicated anti-money laundering (AML) framework and no explicit legal classification.

This loophole in regulation and taxation has resulted in Rs 4.8 trillion of VDA trade moving offshore and 73 percent of trading volume in India moving into foreign exchange. He added that 180 Indian crypto startups have moved abroad and 12 million Indians are now investing through overseas platforms.

There is a simple answer to this, Chadha said. Ensure compliance in India and regulate it strongly, he said. It is pertinent to bring him to the ground, said the deputy.

“A clear national regulatory sandbox, with strong AML guardrails can bring activity back to the ground, protect investors, improve compliance and add Rs 15,000-20,000 crore in annual tax revenue,” Chadha said.

“Currently we tax these virtual digital assets as if they are legal, but we regulate them as if they are illegal. My suggestion is that we need to regulate it heavily, close the ecosystem and strengthen AML guidelines. Prohibition is not protection, regulation is protection,” said Chadha.

Separately, Chadha also urged the government to abolish long-term capital gains tax (LTCG) for individual investors in the stock market. He argued that it would increase household wealth and channel savings from gold and real estate into other productive assets. Chadha cited global examples from Switzerland, Singapore, the United Arab Emirates, Hong Kong, New Zealand, Qatar and Malaysia, where long-term capital gains are largely tax-free. “Long term capital gains tax on shares should be made nil in this country for individual investors… I would like LTCG to be nil when STT is increased,” the AAP member said.