Table of Contents
Current Position of Virtual Digital Assets (VDAs) in India
Virtual digital assets are recognized u/s 2(47A) of the Income-tax Act primarily for taxation purposes. Transfers of Virtual digital assets are subject to 30% tax on gains, 1% TDS on transfer consideration, and no set-off of losses against other income. There is still no comprehensive legislation governing crypto assets in India. Regulatory Developments made in India
- Reserve Bank of India repeatedly cautioned users about risks associated with virtual currencies. The 2018 Reserve Bank of India banking restriction on crypto-related entities was struck down by the Supreme Court of India in the landmark Internet and Mobile Association of India v. Reserve Bank of India case. Companies are required to disclose cryptocurrency holdings under amended Schedule III of the Companies Act.
- Virtual Digital Assets Service Providers must register with the Financial Intelligence Unit-India and comply with anti-money laundering obligations under the Prevention of Money Laundering Act, 2002.
WazirX Incident and Legal Concerns: Cyberattack on WazirX, resulting in losses of approximately $230 million in user assets. The incident exposed gaps in legal protection available to crypto users. Indian courts currently face challenges in handling disputes involving crypto assets.
Why IBC Needs Amendment:
The article contends that crypto assets should be expressly recognized as "property" u/s 3(27) of the IBC. Resolution professionals should be empowered and trained to identify crypto holdings, secure private keys, preserve digital assets during insolvency proceedings, and realize value from digital assets during liquidation.
Explicit inclusion of digital assets within the definition of property under IBC. Guidelines from the Insolvency and Bankruptcy Board of India for Custody of crypto assets, Appointment of licensed custodians and Liquidation and realization mechanisms. Better coordination among Reserve Bank of India, Securities and Exchange Board of India, and the Ministry of Finance. Adoption of cross-border insolvency mechanisms based on the UNCITRAL Model Law on Cross-Border Insolvency.
Crypto assets are no longer a fringe investment class. As businesses increasingly hold digital assets, India's insolvency regime must provide statutory recognition, regulatory clarity, and recovery mechanisms for virtual digital assets. Failure to do so may undermine creditor protection, investor confidence, and India's competitiveness in the evolving digital asset ecosystem.
Challenges in Implementation of IBC
- The NCLT faces capacity constraints, as it handles both IBC cases and the backlog from the Company Law Board. This overload risks delays in case disposal.
- Due to limited adjudication capacity, the NCLT may fail to meet the mandatory 180-day resolution timeline (CIRP), which is central to the IBC’s objective of speedy insolvency resolution.
- Similar delays were previously seen in Debt Recovery Tribunals, where even initial hearings exceeded the intended time limit.
- As IBC is a relatively new law, the development of independent and consistent case law is a challenge. Early cases are influenced by older legal frameworks (Companies Act, SICA, SARFAESI), slowing the evolution of a distinct IBC jurisprudence.
- Stakeholders such as creditors, debtors, insolvency professionals, and adjudicating bodies are still adapting from pre-IBC practices, impacting efficiency. Effective implementation depends on strengthening the institutional framework, including NCLT capacity, Insolvency Professionals (IPs), Information Utilities (IUs) and Insolvency and Bankruptcy Board of India (IBBI)
India has recognized crypto assets for taxation and AML compliance, but the IBC still lacks a clear framework for handling digital assets during insolvency, creating a significant regulatory gap that requires urgent legislative reform. The main challenge in IBC implementation is institutional capacity constraints especially at NCLT, leading to delays and hindering the Code’s objective of time-bound insolvency resolution
Top 20 Countries on Global Crypto Adoption Index 2025
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Emerging markets dominate crypto adoption, especially in APAC, where usage is driven by real-life needs like payments, remittances, and inflation protection. India leads globally, ranking #1 across all categories, followed by the US (#2), Pakistan (#3), and Vietnam (#4).
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APAC is the fastest-growing region, with a 69% rise in crypto activity and transaction volume increasing from $1.4T to $2.36T. North America ranks second, led by the US, where growth is driven by regulatory clarity and institutional participation (e.g., Bitcoin ETFs).
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Latin America (+63%) and Sub-Saharan Africa (+52%) are also expanding rapidly due to practical use cases such as everyday transactions and financial inclusion. Overall, there is a clear shift toward the Global South, where crypto adoption is utility-driven, while developed economies focus more on institutional integration.
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Crypto adoption in 2025 is led by emerging economies using it for practical needs, while developed regions strengthen institutional participation through regulation.
