Introduction
Cryptocurrencies, such as Bitcoin and Ethereum, have transformed the global financial landscape, offering decentralized, secure, and innovative alternatives to traditional currencies. In India, a rapidly growing technological hub with an estimated 107 million crypto users in 2025, the rise of digital assets has sparked significant regulatory scrutiny. While cryptocurrencies are legal to buy, sell, and hold, they are not recognized as legal tender, creating a complex and evolving regulatory environment. This article explores the legal framework, taxation policies, regulatory challenges, and future prospects of cryptocurrencies in India as of 2025, providing a detailed guide for investors, businesses, and policymakers.
Historical Context of Cryptocurrency Regulation in India
India’s relationship with cryptocurrencies has been marked by caution, regulatory shifts, and progressive measures. Below is a timeline of key developments:
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2013: The Reserve Bank of India (RBI) issued its first advisory, cautioning against the risks of virtual currencies, including financial, operational, legal, and security concerns. This marked the beginning of regulatory attention to cryptocurrencies.
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2017: The RBI reiterated its warnings, emphasizing that cryptocurrencies were not legal tender. The government formed an Inter-Ministerial Committee (IMC) to study virtual currencies and propose regulatory actions, reflecting growing concern over their impact.
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2018: The RBI issued a circular on April 6, prohibiting banks and regulated financial institutions from providing services to cryptocurrency-related businesses. This effectively crippled crypto exchanges by cutting off access to banking services, leading to operational challenges and the closure or relocation of several platforms, such as Zebpay and Unocoin.
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2020: A significant turning point came when the Supreme Court of India, in the case of Internet and Mobile Association of India v. Reserve Bank of India (March 4, 2020), overturned the RBI’s 2018 banking ban. The court ruled that the ban was disproportionate and violated constitutional rights, allowing banks to resume services to crypto exchanges. This decision revitalized the cryptocurrency market in India.
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2021: The government introduced the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, aimed at banning private cryptocurrencies while laying the groundwork for a Central Bank Digital Currency (CBDC). However, the bill was delayed and has not been passed as of 2025, leaving the sector in a regulatory grey area.
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2022: The Finance Act, 2022, introduced a taxation framework for Virtual Digital Assets (VDAs), classifying cryptocurrencies as taxable assets. This included a 30% tax on gains and a 1% Tax Deducted at Source (TDS) on transactions above specified thresholds.
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2023: The Ministry of Finance issued a notification on March 7, bringing VDAs under the Prevention of Money Laundering Act (PMLA). This subjected crypto exchanges and Virtual Asset Service Providers (VASPs) to Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) regulations, aligning India with global Financial Action Task Force (FATF) standards.
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2024-2025: India continued to refine its crypto stance. The Financial Intelligence Unit (FIU-IND) enforced compliance, issuing notices to non-compliant offshore exchanges like Binance, which faced a fine of 188.2 million rupees in June 2024. The Securities and Exchange Board of India (SEBI) began monitoring crypto tokens resembling securities from April 1, 2025, signaling a multi-agency regulatory approach.
Current Legal Status of Cryptocurrencies in India
As of 2025, cryptocurrencies are legal to buy, sell, hold, and trade in India but are not recognized as legal tender. This means they cannot be used for everyday transactions, such as paying for goods, services, taxes, or legal fines. The Indian government classifies cryptocurrencies as Virtual Digital Assets (VDAs) under the Income Tax Act, treating them as intangible assets subject to taxation.
Key points regarding the legal status:
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Not Legal Tender: Cryptocurrencies like Bitcoin and Ethereum cannot replace the Indian rupee for payments. The RBI maintains that only state-issued currency, including the upcoming Digital Rupee (CBDC), qualifies as legal tender.
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Trading and Ownership: Individuals and businesses can legally trade and hold cryptocurrencies through government-recognized exchanges, provided they comply with Know Your Customer (KYC), AML, and taxation requirements.
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Crypto Mining: Mining is legal but unregulated, with no specific prohibitions. Miners face high electricity costs and must report earnings as taxable income at a 30% rate plus a 4% cess.
Despite the legal status, regulatory uncertainty persists due to the absence of comprehensive crypto-specific legislation. The government is actively reviewing its stance, influenced by global policy shifts, with a discussion paper on cryptocurrency regulation delayed from September 2024 to incorporate international developments.
Taxation Framework for Cryptocurrencies
The Finance Act, 2022, introduced a robust taxation regime for VDAs, effective from April 1, 2022. Below are the key tax provisions:
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30% Capital Gains Tax: Income from the transfer of VDAs, including cryptocurrencies and Non-Fungible Tokens (NFTs), is taxed at a flat 30% rate, plus a 4% cess, regardless of whether the gains are short-term or long-term. No deductions are allowed except for the cost of acquisition. For example, if an investor buys Bitcoin for ₹1,00,000 and sells it for ₹1,50,000, the ₹50,000 profit is taxed at 30% (₹15,000).
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1% TDS: Under Section 194S, a 1% TDS is deducted on transactions exceeding ₹50,000 annually (or ₹10,000 in specific cases) when VDAs are transferred. The buyer is responsible for deducting and remitting the TDS. This applies to both profit and loss transactions, ensuring all trades are tracked.
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No Loss Set-Off: Losses from crypto transactions cannot be offset against gains from other crypto assets or other income sources. This strict policy increases the tax burden for investors.
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Gifts and Airdrops:
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Gifts: Crypto gifts from close family members or those under ₹50,000 are tax-exempt. Gifts exceeding ₹50,000 from non-relatives are taxed at the recipient’s income tax slab rate based on the fair market value.
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Airdrops: Airdropped tokens are taxed at 30% based on their fair market value at the time of receipt, classified as income from other sources.
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Staking and Mining Rewards: Rewards from staking or minting are treated as income from other sources, taxed at 30% plus a 4% cess based on their fair market value at receipt.
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GST Implications: Crypto exchanges providing trading platforms are subject to an 18% Goods and Services Tax (GST) on their commission or platform fees. Mining activities, if conducted as a business exceeding the turnover threshold, may also attract 18% GST. Transactions using crypto as payment for goods or services are treated as barter and taxed based on fair market value.
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Reporting Requirements: Investors must report crypto gains in their Income Tax Return (ITR) using ITR-2 (for capital gains) or ITR-3 (for business income). A dedicated Schedule VDA in ITR forms facilitates reporting of crypto transactions. Companies must disclose crypto holdings in their financial statements as per amendments to the Companies Act, 2013.
Anti-Money Laundering (AML) and Compliance Requirements
The inclusion of VDAs under the PMLA in March 2023 marked a significant step toward regulating crypto-related financial crimes. Key compliance requirements include:
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FIU-IND Registration: All Virtual Asset Service Providers (VASPs), including crypto exchanges, must register with the Financial Intelligence Unit-India (FIU-IND) and comply with AML and CFT guidelines. This includes maintaining records, verifying Aadhaar identification, and conducting Customer Due Diligence (CDD).
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Travel Rule: India has adopted the FATF’s Travel Rule, requiring VASPs to include accurate originator and beneficiary information in wire transfers to prevent money laundering.
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KYC Requirements: Exchanges must implement robust KYC processes, including real-time AML screening and Politically Exposed Person (PEP) checks. Non-compliance can lead to fines, shutdowns, or investigations by the Enforcement Directorate (ED), as seen in the case of WazirX.
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Suspicious Activity Reporting: VASPs must maintain logs of suspicious activities and report them to FIU-IND, ensuring transparency in crypto transactions.
High-profile cases, such as the Delhi Firm Investigation (₹1,858 crore in illegal crypto transactions) and the Bitconnect Coin Case (₹433 crore in attached assets), underscore the government’s focus on combating money laundering through crypto.
Role of Regulatory Bodies
Multiple agencies oversee different aspects of the crypto ecosystem in India:
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Reserve Bank of India (RBI): The RBI regulates cryptocurrencies as non-legal tender, issues warnings about their speculative nature, and is developing the Digital Rupee (CBDC). The retail e-Rupee pilot, launched on December 1, 2022, operates in select cities to modernize payments and enhance financial inclusion.
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Securities and Exchange Board of India (SEBI): Since April 1, 2025, SEBI monitors crypto tokens resembling securities, aligning with a multi-agency regulatory model. SEBI also recommends resolving consumer grievances under the Consumer Protection Act.
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Ministry of Finance: Oversees taxation and AML policies, bringing VDAs under the PMLA and introducing tax provisions in the Finance Act, 2022.
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Insurance Regulatory and Development Authority of India (IRDAI) and Pension Fund Regulatory and Development Authority (PFRDA): These bodies regulate insurance and pension-related virtual assets, ensuring consumer protection and compliance.
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Directorate of Enforcement (ED): Investigates money laundering and economic offenses involving cryptocurrencies, enforcing PMLA provisions.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021
The proposed Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 aimed to create a framework for a CBDC while imposing restrictions on private cryptocurrencies. Key provisions include:
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Prohibition of Private Cryptocurrencies: The bill proposed banning all private cryptocurrencies, except those issued by the state, with a six-month liquidation period for investors. Activities such as mining, buying, selling, or using cryptocurrencies as a medium of exchange, payment system, or investment were to be prohibited.
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Central Bank Digital Currency (CBDC): The bill laid the foundation for the Digital Rupee, to be issued and regulated by the RBI. The Digital Currency Board of India (DCBI) was proposed to oversee compliance and issue guidelines.
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Penalties: Violations could incur fines up to three times the loss caused or gain made, or ₹25 lakh for other offenses. The bill also proposed amendments to the PMLA to include crypto-related offenses.
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Exceptions: The use of underlying blockchain technology for research, experimentation, or teaching was permitted.
As of 2025, the bill remains unpassed, contributing to ongoing regulatory uncertainty. The government is reviewing its discussion paper to align with global standards, with a Financial Stability Board (FSB) review scheduled for October 2025.
Challenges in Regulating Cryptocurrencies
Regulating cryptocurrencies in India presents several challenges:
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Balancing Innovation and Regulation: Striking a balance between fostering blockchain innovation and preventing risks like money laundering and market volatility is complex. Overregulation could push activities to unregulated markets.
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Anonymity and Traceability: The pseudonymous nature of crypto transactions complicates efforts to monitor illicit activities, posing risks to national security and financial stability.
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Global Coordination: The RBI and SEBI advocate for international cooperation to create enforceable regulations, given the borderless nature of cryptocurrencies. India is aligning with FATF standards and preparing for the FSB review.
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Consumer Protection: High volatility and lack of investor awareness increase the risk of fraud and financial loss, necessitating robust consumer safeguards.
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Tax Compliance: The 30% tax and 1% TDS have been criticized for being overly stringent, potentially discouraging investment. The inability to offset losses further burdens investors.
Recent Developments and Future Outlook
In 2025, India’s crypto landscape is characterized by cautious optimism and evolving regulations. Key recent developments include:
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Supreme Court Remarks: In May 2025, Justice Surya Kant criticized the government’s 30% tax without comprehensive regulation, calling crypto a “parallel economy.” This has prompted discussions on regulatory reforms.
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Global Policy Review: Economic Affairs Secretary Ajay Seth announced that India is reviewing its crypto stance due to global shifts, such as crypto-friendly policies in the U.S. under President-elect Trump. The delayed discussion paper will reflect these changes.
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SEBI Oversight: SEBI’s monitoring of crypto tokens resembling securities marks a step toward integrating crypto into existing financial frameworks.
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FIU-IND Enforcement: The FIU-IND’s actions against non-compliant exchanges, such as Binance, underscore India’s commitment to AML compliance.
Looking ahead, India is expected to introduce clearer regulations by 2026, potentially through a revised version of the 2021 bill. The government aims to align with global standards while addressing local concerns like investor protection and financial stability. The Digital Rupee’s expansion and blockchain infrastructure development will likely shape the future of digital assets in India.
Implications for Investors and Businesses
For investors and businesses, navigating India’s crypto landscape requires vigilance and compliance:
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Investors: Must report all crypto transactions in ITR forms, maintain detailed records, and comply with the 30% tax and 1% TDS. Consulting tax professionals is advisable to ensure accurate reporting.
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Businesses: Crypto exchanges and VASPs must register with FIU-IND, implement robust AML/KYC measures, and prepare for potential licensing requirements. Non-compliance risks fines and legal action, as seen with WazirX and Binance.
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Startups: Blockchain-based startups can leverage Distributed Ledger Technology (DLT) for applications like fraud detection and KYC, provided they comply with existing regulations.
Conclusion
India’s cryptocurrency regulations in 2025 reflect a cautious yet progressive approach, balancing innovation with financial stability and consumer protection. While cryptocurrencies are legal to trade and hold, they operate in a regulatory grey area, with a 30% tax, 1% TDS, and stringent AML requirements shaping the ecosystem. The unpassed Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 and ongoing global policy reviews signal that comprehensive legislation is on the horizon. As India prepares for the FSB review and expands its Digital Rupee, stakeholders must stay informed and compliant to capitalize on the opportunities in this dynamic market. For the latest updates, investors and businesses should consult legal and financial advisors and monitor announcements from the RBI, SEBI, and the Ministry of Finance.