Cryptocurrency in India has long occupied a gray area, neither fully embraced nor outright banned. Over time, the government, regulatory agencies, and courts have each taken steps that clarify certain aspects of the legal landscape, while leaving others ambiguous. In this article, we examine the current status (as of 2025) of cryptocurrency legality in India: what is permitted, what remains uncertain, how taxation works, which regulatory actors play roles, and what future changes may lie ahead. We also use tables to summarise complex regulation and to display comparative data.

Historical Evolution and Current Legal Framework

Early RBI Circular & Supreme Court Reversal

In April 2018, the Reserve Bank of India (RBI) issued a circular prohibiting banks and regulated financial institutions from providing services to entities dealing in virtual currencies. This effectively choked off banking access to crypto exchanges, placing them under severe strain. Over the subsequent years, many exchanges had to consider relocating or winding down operations.

However, in March 2020, the Supreme Court of India struck down that circular in Internet and Mobile Association of India v. RBI, holding that the RBI lacked the legislative authority to enforce such a blanket prohibition. This revived the crypto sector and allowed trading and exchange activity to resume more freely under banking infrastructure.

Absence of a Unified Crypto Law

Even after the Supreme Court judgment, India has not enacted a comprehensive law dedicated purely to cryptocurrencies. No statute presently classifies cryptocurrencies as “currency” or gives them legal tender status. The central government and various ministries, including Finance, Law & Justice, and Electronics & Information Technology, continue deliberations and inter-ministerial consultations about a suitable legislative framework.

In parliamentary responses, government officials have repeatedly stated that “crypto / virtual assets are not regulated in India” as of now. Nevertheless, certain existing statutes have been adapted to apply to digital assets, such as in the tax regime and anti-money laundering (AML) obligations.

Current Legal Status: Legal to Hold & Trade, Not Legal Tender

As of 2025, it is broadly accepted that Indian citizens may legally hold, buy, sell, and trade cryptocurrencies, subject to regulatory conditions. What is disallowed is presenting crypto as a medium of exchange equivalent to Indian rupees, i.e., cryptocurrencies are not legal tender in India.

This distinction means that while you may deal with crypto on registered platforms, you cannot, for instance, compel a merchant to accept Bitcoin as payment under law. The government retains exclusive authority over issuing legal tender, currently, that role is held by the Reserve Bank of India via fiat note issuance and the digital rupee initiative.

Regulatory Oversight & Institutional Roles

Multiple institutions share responsibilities in the Indian crypto ecosystem. Below is a table summarizing their roles, followed by discussion.

Key Regulatory Bodies & Their Functions in India’s Crypto Ecosystem

Institution / Body	Role in Crypto / Virtual Digital Asset (VDA) Regulation	Key Powers / Constraints
Ministry of Finance / Central Government	Overarching policy, tax law amendments, regulatory proposals	Can propose tax regimes, classify assets, introduce legislation
Reserve Bank of India (RBI)	Monetary policy, financial stability, digital rupee issuance	Views private cryptocurrency as systemic risk; issues policy guidelines
Securities and Exchange Board of India (SEBI)	Oversight when a crypto asset resembles a security or investment contract	Can regulate securities aspects if tokens qualify as securities
Financial Intelligence Unit – India (FIU-IND)	AML/CFT oversight; registration of Virtual Asset Service Providers (VASPs)	Registers exchanges, monitors reporting obligations under PMLA
Income Tax Department / Central Board of Direct Taxes (CBDT)	Tax assessment, enforcement, rule-making for digital assets	Collects 30% flat tax, ensures compliance, audits
Judiciary (Supreme Court / High Courts)	Interpretation of constitutional and statutory liabilities	Can strike down executive overreach or clarify ambiguity

Prior to the 2020 judgment, RBI had effectively shut services for crypto via banking channels, but its stance has remained cautious. More recently, government documents suggest that India is reluctant to fully formalize crypto via legislation, fearing systemic risks. Some reports indicate India plans to continue with partial oversight rather than comprehensive regulation.

Taxation and Compliance Regime

India now treats cryptocurrencies as Virtual Digital Assets (VDAs) under the Income Tax Act. The tax regime is stringent and somewhat unfriendly to crypto holders, as losses generally cannot be offset and only minimal deductions are allowed.

Key Tax Rules

30% flat tax on gains arising from transfer (sale, exchange, gift) of VDAs.
1% Tax Deducted at Source (TDS) on transfer of VDAs when the transaction value exceeds ₹10,000.
No set-off of losses from crypto transactions against other income sources.
No carry-forward of VDA losses to later financial years.
Exchanges and VASP platforms are mandated to collect and report TDS, maintain KYC/AML compliance, and report transactional information to authorities.

Comparative Snapshot

Below is a comparative snapshot of how India’s tax regime stacks versus some competing jurisdictions (simplified view for illustration):

Jurisdiction	Tax Rate on Capital Gains (Crypto)	Loss Set-off / Carry-forward	Additional Withholding / Reporting Rules
India	30% + 1% TDS on transfers	No set-off or carry-forward	TDS, reporting by VASPs, transaction reporting
United States	Up to 37% (depending on holding period)	Losses offset capital gains / up to $3,000 per year	1099-B, FATCA reporting, form 8949
Singapore	Generally no capital gains tax	N/A (no capital gains regime)	Occasional reporting under IRAS for income-generating crypto
Germany	0% if held > one year, else personal income rate	Losses can offset crypto gains	Reporting obligations above thresholds

From the table, India’s regime is relatively harsher on crypto investors due to lack of loss set-off and mandatory withholding. The impact is that speculative or high-frequency investors bear heavy tax burdens and greater compliance overhead.

Challenges, Risks, and Case Studies

Security Breaches & Platform Risk

One prominent incident was a large-scale hack of an Indian crypto exchange in 2024, resulting in a loss of hundreds of millions of dollars in client assets. This highlighted vulnerabilities in exchange security and the absence of robust investor protection frameworks.

Regulatory Uncertainty & Investor Skepticism

Because India has not enacted a comprehensive crypto statute, businesses and investors live in uncertainty. A government document in 2025 indicated that India is “resisting full crypto regulation,” opting for partial oversight instead, citing systemic risk concerns. The lack of clarity disincentivizes innovation and encourages some actors to operate offshore or under lower oversight.

Enforcement and Penalties

While crypto is permitted, certain proposed bills (e.g. draft crypto-ban proposals from earlier years) suggested heavy penalties for unauthorized issuance, mining, or use as medium of exchange. Though these have not become law, the specter of prohibition remains. Also, noncompliant exchanges have been fined by FIU for AML violations, reaffirming that oversight will become stricter.

Cross-Border & Foreign Exchange Risks

Cryptocurrency flows cross national boundaries. Indian regulators are concerned about money laundering, financing terrorism, and capital flight. Thus, foreign crypto exchanges must register with FIU-IND if they cater to Indian users. Failure to do so risks being blacklisted or blocked.

Future Outlook: Where Can Reforms Lead?

India’s future crypto regulation may follow one of several possible trajectories:

Multi-agency regime
The government could adopt a structure where RBI handles monetary and systemic aspects, SEBI governs security-like tokens, and finance ministry handles taxation and overall policy. Some reports suggest such a model is under active consideration.
Targeted regulation rather than ban
Given global momentum for crypto regulation (especially from countries like the U.S., EU), India might lean toward regulated legitimization rather than prohibition. However, even regulatory recognition would be cautious, protecting financial stability.
Consumer protection & licensing for VASPs
Stricter licensing for exchanges and service providers, capital and operational standards, mandated insurance/fund protections for users, and clearer dispute resolution mechanisms are likely to be priorities.
Integration of CBDC & hybrid models
With India having launched pilot models of the digital rupee (e₹), future policy might aim to channel digital payments via the regulated CBDC while restricting private crypto to investment asset class. The state’s drive to promote its own digital currency could influence how liberally or tightly private crypto is regulated.

Conclusion

India’s approach to cryptocurrency in 2025 is cautious and incremental. Cryptocurrencies or digital assets are not banned—citizens may legally hold, buy, and sell them. However, they do not enjoy the status of legal tender, and the government has adopted a complex taxation and compliance regime that is strict on gains and reporting. The absence of a unified regulatory statute means significant uncertainty for investors, businesses, and enforcement authorities alike.

While various bodies—the RBI, FIU, SEBI, and the Income Tax Department—each play roles, India currently follows a piecemeal model of oversight rather than a holistic framework. The tax burden, especially the inability to offset losses, makes crypto investing relatively heavy from a fiscal perspective. At the same time, high-profile security breaches and weak consumer protection amplify risk for users.

Looking ahead, India may settle on a mixed model of regulation: preserving state control over monetary matters (especially via the digital rupee), while providing a structured yet restricted realm for private crypto innovation. In that scenario, the keys will lie in licensing, oversight, and clear legal definitions.

In sum, India’s current crypto landscape is one of permitted use under tight conditions—not wide open, not banned, but carefully constrained. Investors and service providers must stay alert to policy developments and align with compliance requirements.

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