Indien

Disclaimer: The regulatory information provided below is for general informational purposes only and may not reflect the most current legal developments. Cryptocurrency regulations are rapidly evolving and can change frequently. This information should not be considered legal or tax advice. Before making any business or investment decisions, please consult with qualified legal, tax, or financial professionals familiar with your specific jurisdiction and circumstances. Always verify current regulations with official government sources and regulatory bodies.

Legal Classification & Regulatory Framework

Cryptocurrency Status

India has adopted a cautious yet permissive approach to cryptocurrency regulation. Cryptocurrencies are legally classified as Virtual Digital Assets (VDAs) under the Income Tax Act, 1961. While buying, holding, selling, and trading cryptocurrencies is legal in India, they are not recognised as legal tender. This means that cryptocurrencies cannot be used as a medium of exchange for purchasing goods and services, and businesses are not required to accept them as payment.

The legal definition of VDAs is intentionally broad and encompasses any information, code, number, or token generated through cryptographic means that provides a digital representation of value. This definition includes cryptocurrencies, non-fungible tokens (NFTs), and other digital assets that can be transferred, stored, or traded electronically. The classification places VDAs in a unique regulatory space where they are neither prohibited nor fully embraced as financial instruments.

India does not currently have comprehensive cryptocurrency-specific legislation. Instead, regulation is achieved through a patchwork of existing laws, including tax legislation and anti-money laundering frameworks. The government has indicated intentions to develop more comprehensive regulatory frameworks, though specific timelines remain uncertain. The Supreme Court of India has encouraged the government to establish clearer policies regarding virtual digital assets to provide greater regulatory certainty for market participants.

Tax Treatment

India has implemented one of the more stringent cryptocurrency tax regimes globally. All gains from the transfer of virtual digital assets are subject to a flat tax rate of 30%, plus applicable surcharges and cess. This tax applies regardless of the holding period, meaning there is no distinction between short-term and long-term capital gains for VDAs.

Additionally, a 1% Tax Deducted at Source (TDS) applies to cryptocurrency transactions exceeding certain threshold amounts. This TDS mechanism ensures that the government can track transactions and improve tax compliance within the crypto ecosystem. The recipient of gifted cryptocurrency valued above ₹50,000 is also liable for taxation unless specific exemptions apply.

Notably, losses incurred from cryptocurrency transactions cannot be offset against gains from other income sources or even against other cryptocurrency gains. This makes tax planning particularly challenging for active traders and investors. Mining and staking activities are also subject to taxation, with income classified appropriately based on the nature of the activity. All cryptocurrency income must be disclosed in income tax returns under a dedicated schedule for Virtual Digital Assets.

Regulatory Oversight

India employs a multi-agency regulatory approach for cryptocurrency oversight, with several government bodies sharing responsibility. The Ministry of Finance handles policy formulation and taxation regulations, while the Reserve Bank of India (RBI) focuses on monetary policy and oversees the development of India’s Central Bank Digital Currency (CBDC). The Financial Intelligence Unit-India (FIU-IND) serves as the primary enforcement body for anti-money laundering compliance in the crypto sector.

The FIU-IND requires all Virtual Digital Asset Service Providers (VDASPs) operating in India, including both domestic and offshore entities serving Indian users, to register as reporting entities under the Prevention of Money Laundering Act (PMLA), 2002. Registered entities must comply with stringent Know Your Customer (KYC) requirements, maintain detailed transaction records for at least five years, and report suspicious transactions. The Central Board of Direct Taxes (CBDT) ensures compliance with taxation obligations, while the Securities and Exchange Board of India (SEBI) may regulate crypto-based securities in the future.

Business Environment

Banking Relationships

The relationship between traditional Indian banks and cryptocurrency businesses has undergone significant transformation. Following the Supreme Court’s landmark decision overturning the RBI’s earlier prohibition on banks servicing crypto businesses, banking access has been restored for compliant cryptocurrency exchanges and service providers. Banks can now facilitate fiat on-ramps and off-ramps for FIU-IND registered platforms.

However, banks must themselves comply with FIU-IND guidelines under the PMLA, which means they generally prefer to work with fully compliant, registered cryptocurrency exchanges. This creates a system where regulatory compliance directly impacts a crypto business’s ability to establish and maintain banking relationships. Some hesitation persists among traditional financial institutions, but major Indian banks have developed working relationships with registered crypto platforms.

Licensing Requirements

All entities operating as Virtual Digital Asset Service Providers in India must register with FIU-IND as reporting entities. This requirement applies to businesses engaged in exchanging VDAs for fiat currency, exchanging between different VDAs, transferring virtual digital assets, safekeeping or administering VDAs, and providing financial services related to VDA offerings.

The registration process requires comprehensive documentation, including detailed business descriptions, compliance frameworks, and evidence of adherence to AML/CFT guidelines. Registered entities must appoint a principal officer responsible for liaison with FIU-IND, implement robust KYC and Customer Due Diligence (CDD) procedures, and establish transaction monitoring systems. Non-compliance can result in significant financial penalties, operational restrictions, and potential criminal liability. Offshore platforms serving Indian users that fail to register have faced website blocks and app store delistings.

Innovation Support

While maintaining caution regarding private cryptocurrencies, India has demonstrated strong support for blockchain technology and central bank digital currency development. The Reserve Bank of India launched its Central Bank Digital Currency (CBDC) pilot programmes for both wholesale (e₹-W) and retail (e₹-R) segments, positioning the Digital Rupee as a sovereign, regulated alternative to private cryptocurrencies.

The Digital Rupee operates on blockchain technology and is being developed in collaboration with major Indian banks. The initiative aims to reduce costs associated with physical currency management, enhance financial inclusion, and modernise payment systems. India has also explored regulatory sandboxes for emerging technologies including DeFi applications, NFTs, and smart contracts as part of broader digital innovation strategies.

Market Characteristics

Adoption Patterns

India represents one of the world’s largest cryptocurrency markets by user base, with substantial retail participation driving adoption. The country’s young, tech-savvy population and established digital payments infrastructure through the Unified Payments Interface (UPI) have contributed to widespread interest in digital assets. However, the high tax burden has impacted trading volumes and profitability for retail investors.

Institutional adoption remains relatively limited compared to retail participation, partly due to regulatory uncertainty and the absence of clear guidelines for institutional investment in VDAs. Cryptocurrency cannot be used for everyday payments, limiting practical adoption to investment and speculative purposes. The government’s promotion of the Digital Rupee represents an alternative path toward digital currency adoption within a regulated framework.

Industry Focus

Several major domestic cryptocurrency exchanges operate in India, including platforms that have achieved FIU-IND registration and maintain banking relationships. These platforms focus primarily on spot trading, with some offering additional services such as staking and educational resources. The compliance requirements have created a more consolidated market where well-resourced, compliant platforms dominate.

India has also developed a growing blockchain technology sector, with companies focusing on enterprise solutions, supply chain management, and financial services applications. The government’s blockchain initiatives and CBDC development have created opportunities for technology providers and fintech companies working within the regulated digital asset space.

Regulatory Evolution

India’s cryptocurrency regulatory landscape continues to evolve, with ongoing discussions about comprehensive legislation. The government has engaged with international bodies including the Financial Action Task Force (FATF) and the Financial Stability Board (FSB), working to align domestic regulations with global standards. India has also participated in G20 discussions on cryptocurrency regulation, advocating for balanced approaches that address risks while permitting innovation.

The OECD’s Crypto-Asset Reporting Framework (CARF) for cross-border tax compliance will likely influence future Indian regulations. Market participants should anticipate continued regulatory development, potentially including more detailed token classification frameworks, sandbox programmes for emerging applications, and enhanced oversight of decentralised finance platforms. The coexistence of the Digital Rupee with private VDAs suggests India is pursuing a dual-track approach that emphasises its sovereign digital currency while permitting regulated private cryptocurrency activities.

For Current Information:

• Ministry of Finance, Government of India: https://finmin.nic.in
• Reserve Bank of India (RBI): https://www.rbi.org.in
• Financial Intelligence Unit-India (FIU-IND): https://fiuindia.gov.in
• Income Tax Department: https://incometaxindia.gov.in
• Securities and Exchange Board of India (SEBI): https://www.sebi.gov.in