Abstract
India is home to over 107 million users of cryptocurrencies, and it’s always at the number one spot
on the Chainalysis Global Crypto Adoption Index. But it still doesn’t have a common,
comprehensive digital assets legislation. In this article, we will delve into the current legal
framework, tax implications, law enforcement actions, the launch of India’s Digital Rupee, and the
future outlook of cryptocurrencies and digital assets in India in 2026. From investors to Web3
startups, financial services companies to policymakers following the development of digital
finance, here is the landscape you need to know.
1. This is where the Indian government stands. This is the position of the
government of India.
However, at present buying, selling and holding cryptocurrencies in India are completely legal.
Well, I suppose that’s all settled. Almost all the rest is not resolved.
Cryptocurrencies are not recognised as legal tender in India. There is no legal protection to use
Bitcoin or Ethereum for paying rent, paying a business invoice, or grocery shopping. The only
thing you can do is trade them on registered exchanges, store them in wallets, and send them to
other people who have consented to receive them — all in a very strictly regulated environment
and with tax implications.
According to the definition in the Income Tax Act, 1961, these assets are known as Virtual Digital
Assets (VDAs). It was an important classification made in the Union Budget 2022. It recognised
the asset class formally, but also signalled a strong intent to tax it heavily and closely monitor it.
There is a fragmented regulatory framework with multiple institutions. The Reserve Bank of India
(RBI) is responsible for the monetary stability issues. Financial Intelligence Unit (FIU-IND) is
responsible for anti-money laundering compliance. The Securities and Exchange Board of India(SEBI) took over jurisdiction of tokens from April 2025, the definition of which is given as
cryptocurrencies that resemble securities, tokens that give voting rights, dividends or returns
contingent upon a third party’s exertion. Flexibility and confusion, as there is no one authority that
rules the entire space.
In this section, the authors examine the question of how India got here, with a brief account of the
regulatory history.
2. The journey of crypto-regulation in India is far from a straight path.
It has navigated three stages: hostility, a turnaround and a period of guarded acceptance.
The RBI banned banks from providing any services to crypto businesses in 2018, in a circular.
INR deposits and withdrawals were not allowed on exchanges.Depositing and withdrawing with
INR were not possible on exchanges. Nearly the industry went under. The supreme court
overturned this ban in the appeal filed by the Internet and Mobile Association of India against the
Reserve Bank of India in March 2020, stating that RBI had exceeded its powers. Access to the
banks was restored and by the end of two years, India was home to one of the world’s fastest-
growing markets for cryptocurrencies.
Instead, the government turned to another method of control: taxes. The 2022 Union Budget has
introduced a 30% rate of tax levy on all VDA profits, plus 1% Tax Deducted at Source (TDS) on
each transaction exceeding a threshold amount. Expenses are not deductible. No ability to carry
forward losses. It was meant for the purpose of revenue collection and tracing the compliance, and
not meant to promote trading.
It had a sudden and powerful effect. After the tax took effect, the volumes of Indian crypto
exchanges dipped over 70%, according to Chainalysis and Indiatech.org. More than 500 Web3
developers relocated to more favorable jurisdictions such as Dubai, Singapore, and Portugal.More
than 500 Web3 developers relocated to more favorable jurisdictions such as Dubai, Singapore and
Portugal. The tax was the worst hit on retail traders, with a lot relocating to offshore platforms to
avoid it.The government refused to back down. Instead, it announced crypto platforms under the
Prevention of Money Laundering Act (PMLA) in March 2023, which would require them to
register with the FIU-IND and adhere to Know Your Customer (KYC) guidelines, keeping records
for five years and reporting any suspicious transactions by both Indian and foreign Virtual Asset
Service Providers (VASPs).
3. Tax Burden: A Key Barrier to Growth
Taxation is the toughest challenge for any investor or business in a single largest way in India’s
crypto space. The building’s layout is purposefully difficult to navigate.
All gains on the sale of a VDA are subject to a 30% fixed tax rate, whether or not you are in a high
tax bracket and whether or not you owned it for a long time. In July 2025, the major exchanges
rolled out a 18% Goods and Services Tax (GST) on trading, including derivatives, spot trades and
staking rewards. This is in addition to the existing income tax. Considering the 30% income tax,
1% TDS and 18% GST applicable on the services, on regular trading, the effective expense could
be more than 49% per trading cycle. Active trading of digital assets is among the most costly in
the world in India.
There is no way to compensate for losses. If you are losing money on one token and making money
on another in the same financial year or over, you must be taxed on the gain (and no tax relief on
the loss). This is in sharp contrast to the treatments of equities. In a survey last year, 84 percent of
Indians who use crypto platforms found that the tax laws are unfair relative to those for the stock
market, and 90 percent indicated that they would invest more, if the tax regime was clearer and
tax rates were reduced.
The 1% TDS is a real time compliance tool. All transactions lead to a deduction at source and
automatically establish a paper trail connecting the buyer, seller and the amount deducted. It
addresses the enforcement issue for the government. It can cause a cash-flow problem for high-
frequency traders, rendering the active style of trading unfeasible. Most retail investors in India
have reacted to the move by adopting a longer term investment approach to minimise taxable
events.The industry has repeatedly stated that changes are needed in the exchanges. The demands remain
the same – reduction in TDS to 0.01%-0.1% as a mechanism of traceability instead of tax, loss set-
off option and concessional rates for long-term holding like equity. None of these changes have
been made till the Union Budget 2026.
4. Enforcement: Offshore Platforms in the Crosshairs
India’s attitude towards enforcement has become tougher. FIU-IND has made an active effort to
identify non-compliant platforms, particularly to identify those that operate offshore without
registration under the PMLA.
In June 2024, Binance has been fined 188.2 million rupees (approximately $2.25 million) by the
FIU-IND due to non-registration on the FIU platform and the failure to complete the KYC-AML
process. On its own, in August 2024, the government’s Directorate General of GST Intelligence
issued a show-cause notice to Binance, charging it with 722.43 crore rupees ($85 million) in unpaid
GST on transaction fees paid by Indian users from 2017 to 2024. In January, Bybit Fintech Limited
had received a warning of fine of Rs 9.27 crore for the same crime.
Twenty-five offshore crypto platforms were blocked by FIU-IND for non-compliance. The
message was clear, no no-fly! Operating in India without registration is not a grey zone, it is a
violation! Accordingly, many exchanges have been setting up offshore exchanges and registering
with FIU-IND to meet the Indian AML regulations. Coinbase, which had earlier announced a
partial closure of its Indian presence, now resumed user registration in the country and promised
to bring an INR-to-crypto on-ramp to India in 2026.In a bid to expand its presence in India,
Coinbase resumed user registration in the country and announced plans to launch an INR-to-crypto
on-ramp in 2026.
Courts have also relocated. The Madras High Court pronounced cryptocurrencies as legal property
in 2025, which will allow them to be legally held, traded and even attached in the case of a legal
battle. In a recent case that was handled by a top Indian law firm in 2024, the transaction history
and ownership of the wallet was verified in court, and the High Court issued an injunction in the
same manner as it would do for dematerialised shares. Such are meaningful judicial precedents to
provide some sort of judicial recognition to the asset class even in the absence of a specific law.The Union Budget implemented tougher reporting requirements and penalties for transactions that
do not comply with these requirements on April 1, 2026. Now exchanges are required to provide
detailed transaction information in real time to tax authorities. Banks are also under stricter
regulations, being allowed to offer crypto-related accounts, but they are required to keep a separate
account and track, run enhanced due diligence, and limit their direct custodial and investment
activities with crypto assets.
5. SEBI Steps In: Securities Tokens and Multi-Regulator Model
Among the biggest changes in the industry in 2025 was the introduction of crypto regulatory by
SEBI.The entry of SEBI into the regulatory space of cryptocurrencies is one of the most pertinent
structural changes in 2025. SEBI now has regulatory authority over crypto tokens that act in a
manner similar to securities, as per the new definition, from April 1, 2025.
This is significant for a number of reasons. It sets a precedent for the way portions of the crypto
space are considered when they are not viewed as speculative assets, but rather as capital market
products. It moves Indian crypto regulation closer to the approach adopted in the European Union’s
Markets in Crypto-Assets (MiCA) regulation and the current U.S. debate on the classification of
tokens.
India’s crypto space will be governed by a multi-agency approach, with SEBI responsible for
tokens that carry a security-like nature, the Reserve Bank of India for payment-related tokens and
stablecoins, and possibly other agencies for insurance or pension-related tokens, SEBI has
recommended. It is not yet a law but it’s the strongest indication yet that India will not be targeting
out-and-back banning. The expectation of the government was to come up with a discussion paper
by the end of 2026 and for public consultation on this framework to take place, and involve
financial institutions, legal experts, and industry stakeholders.
Fewer than a third of the respondents believe that DeFi will succeed. The definition of service
providers in the PMLA VASP Notification 2023 is based on the activities of the entity and not the
corporate structure of the entity — which is a fair and reasonable definition for centralised entities.
Decentralised protocols, however, are another more difficult challenge. When there is no one in
control of a protocol, with whom should it be registered at FIU-IND? India has not yet answeredthis question and is grappling with the same one that regulators in US, EU and Singapore are
facing.
6. The Digital Rupee – India’s State-backed Alternative
Co-existing with the crypto discussion is the RBI’s own digital currency initiative. The Digital
Rupee (e-rupee or e₹) has been rolled out as a pilot for retail use in December 2022, with 19 banks
and over 7 million users by early 2026. The value of e-rupee in circulation grew to 1,016 crore
rupees (approximately $120 million) by March 2025.
The e-rupee is not a crypto currency. It is a virtual version of a sovereign currency which is backed
by the RBI, has no volatility risk and retains full legal tender value. The RBI has been clear about
their message and the Digital Rupee is intended for transactions and daily payments. Private
cryptos are used for speculation.
The most unique feature of the Digital Rupee is its programmability. Some State governments
have leveraged programmable features of the CBDC for direct benefit transfers. In DEEPAM 2.0
scheme, Andhra Pradesh issues LPG subsidies via programmable e-rupee and the beneficiaries can
only be redeemed at the registered agencies upon getting LPG cylinder. Under Gujarat SAFAL
scheme, the programmable CBDC is used for distribution of agricultural subsidy for specifically
approved inputs in a specific area. These use cases directly tackle some of the issues that plagued
the governance of India for years, namely corruption and subsidy leakage.
At the 24th BRICS Summit to be hosted by India this year, CBDC’s India is pitching e-rupee for
interoperability with other BRICS countries at the international stage. RBI has already inked
bilateral CBDC linkage with UAE. The idea is pitched as a means to de-dollarize trade settlements
and provide institutional alternatives to stablecoins such as USDT and USDC for cross-border
payments. RBI Deputy Governor T. Rabi Sankar is clear about the danger of ‘stablecoins’ to replace
your currency and policy sovereignty. They have no function that could not be better served by
CBDC.’
India is also looking in to the deposit tokenisation. The RBI has initiated a trial of tokenisation of
certificates of deposit on a blockchain-based platform using its wholesale CBDC in October 2025.
In an official statement, RBI Governor Sanjay Malhotra presented the Unified Markets Interface(UMI), a new generation financial market interface project that will facilitate two new functions:
first, the tokenisation of assets and second, settlements via smart contracts using wholesale CBDC.
7. Individuals and Communities in India’s Past
India isn’t alone. In fact, governments around the globe are transitioning from discussion to action,
with India closely observing the process.
In 2024, the European Union (EU) enacted its full MiCA legislation, which introduced the EU’s
all-encompassing licensing regime for crypto asset service providers (CASPs) in 27 member states.
In 2025, the United States enacted its first crypto market structure bill – after years of regulatory
conflicts between the SEC and CFTC – which offered more clarity around the lines between
securities and commodity-like tokens. Dubai and Singapore still stand as the two most appealing
locations for Indian Web3 startups to move to, due to the lack of tax pressures.
Scale is India’s big problem. Having more than 107 million users of cryptocurrencies and a market
value of $6.4 billion, it can’t be either too restrictive or too permissive. India’s presidency of the
G20 resulted in the New Delhi Declaration of 2023, which included a call for the development of
a global framework for crypto assets in line with FATF standards. India has taken the stance of
being able to regulate in a coordinated fashion rather than in arbitrary national ban. This position
has persisted into 2026.
The on-chain transactions in the APAC region surged by 69% from June 2024 to June 2025,
reaching a staggering $2.36 trillion. Between June 2024 and June 2025, on-chain transactions in
APAC grew by 69% to reach an impressive $2.36 trillion. In India, a young, tech-savvy population,
800 million smart phone users and a UPI infrastructure that made digital financial transactions a
way of life across income groups is a major driver of this volume.
8. Innovation and Enforcement in Practice: Case Studies
Three real-life examples are provided to show how crypto regulation is playing out in India, how
it isn’t, and how innovation is still going on despite the storm.
Case 1 — Binance’s Reckoning: Binance has been the largest cryptocurrency exchange in the
world by volume and it was a crypto exchange that was involved in trading without any FIUregistration for years. It received Indian users, transaction fees were charged and lots of revenue
was earned from the market. Last year, when FIU-IND acted in 2024, the reaction was quick –
fines, a GST demand of 722 crore rupees, and a temporary ban on access for Indian users. Binance
eventually registered with FIU-IND and came back to the Indian market in a compliant manner.
The take-home message: Offshore status and size are no protection under India’s PMLA regime.
In the case of the Madras High Court, it was ruled that cryptocurrency is property under Indian
law in 2025. This ruling has practical implications. The attachment of crypto assets is now possible
in debt recovery actions initiated by the creditors. An injunction can be granted that will prevent
people from accessing their wallets. Divorce settlements and succession disputes can be treated
with regard to Crypto assets. This judicial recognition is filling a judicial void left by Parliament.
In April 2024, in partnership with RBI, the IndusInd Bank successfully facilitated 50 farmers from
Maharashtra to sell carbon credits and receive payments in programmable digital rupees (DR).
This use case illustrates the possibility of developing new financial products for Indian agriculture
that are possible to achieve using blockchain technology and CBDC infrastructure, but which does
not require the use of a private cryptocurrency.
9. Outlook to 2030: What to Expect
India’s crypto and digital asset policy is more likely to be evolutionary over the next four years
than it is to be revolutionary. The evidence says:
A dedicated law for digital assets is expected to be soon: Supreme Court had asked the Parliament
to make a specific law in 2024. The government has recognized the need for clarity in regulation.
A discussion paper will be expected in 2026. However, with the complexity of the problem and
the legislative process in India, a comprehensive legislation that will include licensing frameworks,
rules for stablecoins, and DeFi frameworks is expected to be available closer to 2028 or 2029.
Tax Reform is possible but not guaranteed: 30 percent flat tax & one percent TDS are the top two
challenges for India to attract more global crypto activity and Web3 talent. Industry estimates
indicate that the return of a large part of the 500+ developers and dozens of startups that moved
away would be possible with the reduction of TDS to 0.1% and with the provision of loss set-off.It will be interesting to see if the government considers this to be a worthwhile political price to
pay to appear to favour a speculative asset class.
Institutional Adoption Will Grow: With the SEBI framework for security tokens and the increased
clarity from a future law, mutual funds, pension funds, and insurance companies will find their
way into the digital asset space. Established by global firms such as BlackRock, which introduced
its Bitcoin ETF in the United States, these products will persist in pushing for their introduction in
India. While the figure of $1 trillion is an optimistic estimate for the future, industry estimates such
as Hashed Emigrant’s project India’s Web3 GDP to reach $1 trillion by the year 2030.
The e-rupee has 7 million users, a good number for a pilot, but less than 0.5% of the Indian
population. To achieve mass adoption of these systems, trust, interoperability and convenience are
key. By 2026, the focus of the RBI will not be on transaction volumes but on specific functions
such as offline NFC payments and programmability at the user level. If this linkage between
BRICS CBDCs can be accomplished, it will be a major achievement. However, replacing cash or
UPI in large-scale is a task that can only be done in years of infrastructure and behaviour change.
The end of the day, crypto with its value attached as a financial asset will become normal. Private
crypto will be considered a high-risk financial asset, legal, taxed, compliance-heavy and capital
market-style supervised with regards to qualifying tokens. This will not be cash. It will not be
banned by the government. And it won’t go away
10. Conclusion
India’s relationship with cryptocurrency is a study in pragmatic caution. The government has
resisted both extremes — the outright ban that China chose and the open embrace that El Salvador
attempted. Instead, it has built a regulatory framework through taxation, compliance mandates,
and court-driven precedents, while simultaneously developing the Digital Rupee as its preferred
instrument for digital commerce.
The result is a market with 107 million users that operates under significant friction. High taxes
drive activity offshore. Regulatory gaps leave entire categories — DeFi, NFTs, staking, cross-
border transfers — in uncertain territory. And a comprehensive law that could resolve these
ambiguities is still years away.For investors and businesses operating in this space, the practical takeaways are straightforward.
Trade only on FIU-IND registered exchanges. Maintain detailed records of every transaction.
Accept that losses cannot be offset and plan your tax position accordingly. Watch the 2026
discussion paper closely — it will be the clearest indicator of where SEBI’s multi-regulator model
is heading. And if you are building a Web3 product, factor compliance costs into your business
model from day one, not as an afterthought.
India will not resolve its crypto regulatory uncertainty overnight. But the direction of travel —
regulated, taxed, and increasingly court-recognised — is clearer in 2026 than it has ever been.
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