Cryptocurrency Regulation in India: Where the Law Stands in 2025

India has no dedicated crypto statute. Virtual digital assets are instead governed through taxation, anti-money laundering registration and the RBI’s supervision of banks. This article sets out the current position for investors, exchanges and businesses.

India ranked first in the Chainalysis Global Crypto Adoption Index in both 2023 and 2024, yet it has no dedicated statute governing crypto-assets. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was listed for introduction in Parliament but was never introduced, and no comprehensive framework has replaced it.

Virtual digital assets (“VDAs”) are not legal tender in India, but dealing in them is not prohibited. Instead, the State regulates the sector indirectly, through three instruments: a special tax regime introduced in 2022, anti-money laundering obligations imposed on service providers in 2023, and the Reserve Bank of India’s (“RBI”) supervision of the banks that deal with crypto businesses. At the same time, the RBI is developing the Digital Rupee as a state-backed alternative.

This article sets out where the law stands, what it requires of investors, exchanges and wallet providers, and how India’s approach compares with other major jurisdictions.

The Legal Status of Crypto-Assets in India

From Prohibition to Permitted Activity

In April 2018, the RBI directed the entities it regulates not to deal in virtual currencies or provide services to persons dealing in them. In Internet and Mobile Association of India v. Reserve Bank of India,¹ the Supreme Court set aside that circular in March 2020 as a disproportionate restriction on the right to carry on trade. In May 2021, the RBI advised banks not to rely on the 2018 circular, while continuing to apply customer due diligence, anti-money laundering and foreign exchange requirements to crypto-related transactions.²

Banks may therefore provide services to crypto businesses, subject to their ordinary due diligence and risk assessment. The RBI has, however, consistently expressed concern that private crypto-assets pose risks to financial stability and monetary sovereignty.

The Digital Rupee

The RBI launched pilots of its Central Bank Digital Currency, the Digital Rupee (e₹), in the wholesale segment on 1 November 2022 and in the retail segment on 1 December 2022. The retail e₹ allows person-to-person and person-to-merchant payments through digital wallets offered by participating banks. The Digital Rupee is legal tender and offers a state-backed digital alternative to private crypto-assets, though it remains at the pilot stage.

Taxation of Virtual Digital Assets

The Finance Act, 2022 introduced a definition of “virtual digital asset” in Section 2(47A) of the Income-tax Act, 1961 and a separate tax regime for VDAs.

Flat Tax of 30% on Gains

Under Section 115BBH, income from the transfer of VDAs is taxed at a flat rate of 30%, plus applicable surcharge and 4% cess, irrespective of the holding period. No deduction is allowed other than the cost of acquisition, and losses from VDA transfers cannot be set off against any other income or carried forward to later years. The Union Budget 2025 left this regime unchanged.³

1% TDS on Transfers

Section 194S requires tax to be deducted at source at 1% on consideration paid for the transfer of a VDA, with effect from 1 July 2022. The obligation applies where the aggregate consideration in a financial year exceeds:

• ₹50,000, where the payer is a “specified person” (broadly, an individual or Hindu undivided family without business or professional income above the tax audit threshold); and
• ₹10,000, in any other case.

Indian exchanges generally deduct TDS on behalf of their users. In peer-to-peer transactions, or where a foreign exchange is used, the obligation to deduct may fall on the buyer.

Reporting Obligations Introduced in 2025

The Finance Act, 2025 introduced Section 285BAA, which requires prescribed reporting entities to furnish information on crypto-asset transactions to the tax authorities. It also expressly brought VDAs within the scope of “undisclosed income” for the purposes of block assessments following a search.⁴ These changes increase the visibility of crypto holdings and transactions to the Income Tax Department.

Anti-Money Laundering Obligations for Exchanges and Wallet Providers

VDA Service Providers as Reporting Entities

By a notification dated 7 March 2023 under the Prevention of Money Laundering Act, 2002 (“PMLA”), the Central Government brought entities carrying on the following activities for or on behalf of another person within the definition of “reporting entity”:

• exchange between VDAs and fiat currencies;
• exchange between one or more forms of VDAs;
• transfer of VDAs;
• safekeeping or administration of VDAs, or instruments enabling control over VDAs; and
• participation in and provision of financial services related to an issuer’s offer and sale of a VDA.

Registration with FIU-IND and Compliance Requirements

VDA service providers must register with the Financial Intelligence Unit–India (“FIU-IND”). Under the PMLA and FIU-IND’s guidelines, they must, among other things:

• verify the identity of their clients through know-your-customer procedures;
• maintain records of transactions and client identity for at least five years;
• monitor transactions and report suspicious transactions to FIU-IND;
• appoint a Designated Director and a Principal Officer responsible for compliance; and
• collect and transmit originator and beneficiary information on VDA transfers, in line with the Financial Action Task Force (“FATF”) “Travel Rule”.

Enforcement Against Offshore Exchanges

The registration requirement applies to offshore exchanges serving Indian users. In December 2023, FIU-IND issued show cause notices to nine offshore VDA service providers, including Binance and KuCoin, for operating without registration, and access to their websites was subsequently blocked. Binance registered with FIU-IND in 2024 after paying a penalty of ₹18.82 crore, and KuCoin also registered after paying a penalty. Offshore platforms serving Indian users must therefore register with FIU-IND and comply with Indian AML requirements.

Oversight and Investor Protection

India has not designated a single regulator for crypto-assets. In its 2024 submissions to a government committee, the Securities and Exchange Board of India (“SEBI”) proposed that oversight be divided among existing regulators according to the nature of the asset, with SEBI overseeing crypto-assets that function as securities, a position that differs from the RBI’s more cautious approach.⁵ The Central Government has not yet adopted a formal position.

Investor protection currently rests on the general law: KYC and AML obligations under the PMLA, consumer protection legislation, and the tax regime. The Supreme Court has, in the course of hearings in 2025, questioned the absence of a clear regulatory policy on crypto trading.

India’s Position in the Global Landscape

Alignment with FATF Standards

As a FATF member, India has aligned its treatment of VDA service providers with FATF Recommendation 15, including the Travel Rule. Bringing VDA service providers within the PMLA in 2023 was a significant step towards meeting these standards.

Comparison with the EU and the United States

The European Union’s Markets in Crypto-Assets Regulation (“MiCA”), fully applicable from 30 December 2024, provides a single licensing and conduct framework for crypto-asset issuers and service providers across member states. The United States has relied largely on enforcement by the Securities and Exchange Commission, supplemented in 2025 by federal legislation on payment stablecoins.

India’s approach differs from both. Rather than a dedicated licensing statute, India regulates crypto-assets through taxation and AML obligations, and has not determined which crypto-assets, if any, are securities. The result is a framework that is clear on tax and compliance obligations, but uncertain on licensing, investor protection and the legal characterisation of different kinds of crypto-assets.

Conclusion

Crypto-assets occupy an unusual position in Indian law: dealing in them is lawful and heavily taxed, service providers are subject to full AML obligations, and yet there is no statute that governs the sector as a whole. For investors, the principal considerations are the 30% tax on gains, the restrictions on set-off of losses and TDS. For exchanges and wallet providers, including offshore platforms, registration with FIU-IND and compliance with the PMLA are mandatory.

Businesses operating in this sector should expect further change, whether through a consultation or discussion paper from the Central Government, the new reporting requirements under the Income-tax Act, or the expansion of the Digital Rupee. Until then, compliance with the existing tax and AML framework is the foundation of any lawful crypto business in India.

Footnotes

1. Internet and Mobile Association of India v. Reserve Bank of India, (2020) 10 SCC 274. ↩

2. Reserve Bank of India, circular on customer due diligence for transactions in virtual currencies, 31 May 2021. ↩

3. https://www.barandbench.com/view-point/cryptocurrency-in-india-a-guide-to-taxation-and-compliance-in-2025 ↩

4. https://www.business-standard.com/budget/news/govt-introduces-new-compliance-requirements-for-crypto-asset-transactions-125020100964_1.html ↩

5. https://www.reuters.com/world/india/indias-sebi-open-oversight-crypto-trade-contrast-reserve-bank-2024-05-16/ ↩