Understanding the Legal Status of Cryptocurrencies in India (2025 Update)

Quick Takeaways

• India calls crypto assets “Virtual Digital Assets” (VDAs) - legal to own and trade, but not legal tender.
• Supreme Court’s 2020 ruling restored banking access after the 2018 RBI ban.
• Flat 30% income‑tax on VDA gains plus 1% TDS and 18% GST makes the effective tax burden >49%.
• Four agencies oversee the space: RBI, Ministry of Finance, FIU‑IND, and SEBI (since 2025).
• Future regulation may arrive via a discussion paper and a dedicated crypto bill, but the core stance is unlikely to change soon.

How India Defines Crypto Assets

In Indian law, the term Virtual Digital Assets (VDAs) replaces the generic phrase “cryptocurrency.” A VDA is any digital representation of value that can be transferred, stored, or traded electronically, but it does not have the status of legal tender. The definition was codified after the Supreme Court’s 2020 decision and now sits under the Income Tax Act, 1961, and the Prevention of Money Laundering Act (PMLA).

Because VDAs are not legal tender, they cannot be forced upon a creditor to settle debts. Only the central bank digital currency (digital rupee) issued by the Reserve Bank of India (RBI) enjoys that status.

Historical Timeline of Crypto Regulation in India

1. 2013‑2017: RBI issues three public cautions warning about the risks of virtual currencies.
2. April 6, 2018: RBI circular titled “Prohibition on dealing in Virtual Currencies” bans banks and NBFCs from supporting crypto‑related activities.
3. March 2020: Supreme Court of India overturns the 2018 ban in Internet and Mobile Association of India v Reserve Bank of India, restoring banking services for crypto firms.
4. 2022‑2023: Ministry of Finance introduces a flat 30% tax on VDA gains; FIU‑IND makes registration mandatory for all VDA service providers.
5. April 1, 2025: Securities and Exchange Board of India (SEBI) begins oversight of tokens that exhibit security characteristics.
6. July 7, 2025: Bybit applies an 18% GST on all crypto‑related services, pushing the effective tax rate above 49%.

Current Regulatory Framework

Four bodies share responsibility for crypto activities:

• Reserve Bank of India (RBI) - monitors systemic risk, issues policy guidance, and enforces that private crypto cannot become legal tender.
• Ministry of Finance - drafts tax rules, publishes annual finance bills, and oversees the broader fiscal impact of VDAs.
• Financial Intelligence Unit‑India (FIU‑IND) - implements AML/KYC requirements under the PMLA; all exchanges must register and submit periodic reports.
• Securities and Exchange Board of India (SEBI) - applies securities law to crypto tokens that function like shares or bonds.

The overlapping jurisdictions create a compliance maze: a crypto exchange must simultaneously satisfy RBI’s stability guidelines, FIU‑IND’s AML checks, SEBI’s securities reporting (if applicable), and the Ministry’s tax filing obligations.

Taxation Regime - Numbers You Need to Know

India’s crypto tax policy is among the toughest worldwide. The key components are:

These taxes are collected by the government through the exchange’s compliance layer. Failure to report gains can trigger penalties under the Income Tax Act and the PMLA.

What It Means for Users and Businesses

For an individual investor, the practical steps are:

1. Maintain a detailed ledger of every buy, sell, swap, and staking reward.
2. Calculate net gains per transaction; apply the 30% flat rate.
3. Ensure the exchange deducts 1% TDS on qualifying transfers and provides a Form‑26AS receipt.
4. Include GST paid on service fees when filing annual returns (though it is not creditable).

Businesses that operate exchanges, wallets, or crypto‑related services face tougher obligations:

• Register with FIU‑IND and implement real‑time AML monitoring.
• Act as TDS collectors for all outbound VDA transactions above the threshold.
• File periodic GST returns for each service category.
• If the platform issues tokens that resemble securities, submit prospectus‑style disclosures to SEBI.

These compliance costs have pushed many smaller players out of the Indian market, consolidating activity around well‑capitalised domestic exchanges like WazirX, CoinDCX, and a few global platforms that have set up Indian subsidiaries.

Future Outlook - Where Is India Heading?

Several developments could reshape the landscape:

• Discussion paper (2025): The government promised a public consultation on a dedicated crypto law. Topics expected include DeFi regulation, staking reward treatment, and custody licensing.
• FSB peer review (October 2025): International recommendations may nudge India toward tighter AML standards and clearer token classification.
• Potential crypto‑specific legislation: Analysts predict a bill that codifies VDA definitions, streamlines tax reporting, and creates a tiered licensing regime for exchanges, custodians, and lending platforms.
• Digital rupee rollout: As RBI pushes the CBDC, it may incentivise users to shift away from private VDAs, especially for everyday payments.

While the core stance-legal to hold, illegal to use as legal tender-will likely stay, we can expect finer granularity in how different token types are taxed and supervised.

Frequently Asked Questions