Abstract

Cryptocurrency has developed from a relatively unfamiliar technological experiment into an important part of the global digital economy. India has not prohibited private cryptocurrencies, but it has also not recognised them as legal tender. Instead, the Indian legal approach has developed through taxation, anti-money-laundering requirements, regulatory warnings and administrative measures. This has created an unusual position: cryptocurrency transactions are subject to significant legal obligations, yet there is no comprehensive legislation specifically governing the wider crypto-asset ecosystem.

The introduction of the Virtual Digital Asset (VDA) tax regime under the Income-tax Act, 1961, and the inclusion of VDA-related activities within the Prevention of Money Laundering Act, 2002 (PMLA), represent important steps towards regulation. However, these measures primarily address taxation and financial crime risks. They do not provide a complete framework dealing with licensing of exchanges, consumer protection, custody of digital assets, market manipulation, stablecoins, decentralised finance, crypto lending, insolvency of exchanges, or cross-border enforcement.

The regulatory uncertainty has become more significant as cryptocurrency markets continue to develop. At the same time, the Reserve Bank of India (RBI) continues to express serious concerns about monetary stability, financial integrity and illicit use of crypto-assets. Recent parliamentary discussions have further demonstrated that India is still debating the appropriate long-term approach.

This paper argues that India should move away from an approach based largely on taxation and risk warnings towards a comprehensive, risk-based regulatory framework. Such a framework should distinguish between different types of crypto-assets, allocate regulatory responsibility according to the activity involved, strengthen investor and consumer protection, impose proportionate licensing requirements and maintain strong anti-money-laundering safeguards without unnecessarily preventing technological innovation.

Keywords: Cryptocurrency, Virtual Digital Assets, RBI, SEBI, PMLA, taxation, crypto regulation, blockchain, investor protection, financial regulation.

1. Introduction

The growth of cryptocurrency has created one of the most difficult regulatory questions for modern financial law. Traditional financial systems are generally built around identifiable institutions such as banks, stock exchanges, brokers and payment intermediaries. Cryptocurrency challenges this structure because transactions can take place through decentralised networks without a conventional central intermediary.

Bitcoin, introduced in 2009, was initially presented as a form of peer-to-peer electronic cash. Since then, the digital asset ecosystem has expanded considerably. It now includes cryptocurrencies, stablecoins, non-fungible tokens (NFTs), decentralised finance (DeFi), crypto exchanges, wallets, tokenised assets and other blockchain-based applications.

For India, the issue is particularly important because cryptocurrency intersects with several areas of law at the same time. It involves taxation, foreign exchange, financial regulation, consumer protection, cybercrime, money laundering, data protection and monetary policy.

India’s approach has historically been cautious. The RBI began warning the public about virtual currencies as early as 2013, highlighting risks concerning financial, operational, legal, consumer protection and security issues. (Reserve Bank of India)

The legal position changed significantly after the Supreme Court’s decision in Internet and Mobile Association of India v. Reserve Bank of India (2020), where the Court set aside the RBI’s 2018 circular that effectively restricted regulated entities from providing banking services to cryptocurrency businesses. The judgment was important not because it declared cryptocurrency legal tender, but because it demonstrated that regulatory action affecting the crypto sector must satisfy constitutional standards, including proportionality.

Since then, the Government has adopted a more indirect regulatory approach. Instead of introducing one comprehensive cryptocurrency law, it has imposed taxation on income from VDAs and brought specified VDA-related activities within the PMLA framework.

The result is a fragmented regulatory structure.

This raises the central question of this research:

Is India’s existing cryptocurrency framework sufficient to protect consumers, maintain financial stability and prevent illicit activities, or does India require a comprehensive regulatory framework specifically dealing with crypto-assets?

This paper argues that the present framework is an important beginning but is insufficient as a complete regulatory solution.

2. Objectives of the Study

The principal objectives of this research are:

1. To examine the present legal position of cryptocurrency in India.
2. To analyse the taxation of Virtual Digital Assets under Indian law.
3. To examine the application of the Prevention of Money Laundering Act, 2002 to VDA service providers.
4. To identify the major legal and regulatory challenges associated with cryptocurrency.
5. To examine the role of the RBI, SEBI, FIU-IND and other regulatory institutions.
6. To analyse the need for consumer and investor protection.
7. To examine international regulatory approaches.
8. To propose a comprehensive and practical regulatory framework for India.

3. Research Questions

This paper addresses the following research questions:

1. What is the current legal status of cryptocurrency in India?
2. Does taxation of cryptocurrency amount to legal recognition of crypto-assets?
3. Is the existing PMLA framework sufficient to address cryptocurrency-related money laundering?
4. Which Indian regulator should supervise cryptocurrency activities?
5. What legal protection is available to cryptocurrency investors and consumers?
6. How should India regulate decentralised finance, stablecoins and offshore exchanges?
7. Would prohibition or comprehensive regulation be more effective for India?
8. What should a comprehensive Indian cryptocurrency framework contain?

4. Research Methodology

The research follows a doctrinal legal research methodology.

The study primarily relies upon legislation, judicial decisions, government notifications, regulatory materials, official publications and international standards. The major legal sources examined include the Income-tax Act, 1961, the Prevention of Money Laundering Act, 2002, relevant government notifications and judicial decisions.

Secondary material includes academic literature, reports and contemporary legal and regulatory commentary.

The research is analytical rather than empirical. It seeks to evaluate the adequacy of the existing legal framework and propose reforms.

5. Understanding Cryptocurrency and Virtual Digital Assets

Cryptocurrency is a digital asset generally based on blockchain or distributed ledger technology. Transactions are recorded on a distributed network rather than being maintained exclusively by a central institution.

Bitcoin and Ethereum are common examples, although the crypto ecosystem is much broader than these assets.

Indian law does not simply use the term “cryptocurrency” as its primary statutory category. The Income-tax Act uses the wider concept of a Virtual Digital Asset.

The statutory definition is deliberately broad. It covers information, code, numbers or tokens generated through cryptographic or other means that represent value and can be transferred, stored or traded electronically. It also includes NFTs and other specified digital assets. (Income Tax India)

This broad definition is useful from a taxation perspective because it prevents taxpayers from avoiding taxation merely by changing the terminology or technological structure of an asset.

However, the broadness of the definition also demonstrates a limitation of the present approach. A tax definition does not automatically answer whether an asset should be treated as a security, commodity, payment instrument, investment product or something entirely different for regulatory purposes.

6. Evolution of India’s Cryptocurrency Policy

India’s cryptocurrency policy can broadly be divided into several stages.

6.1 Initial warnings by the RBI

The RBI’s approach initially focused heavily on risk.

In December 2013, the RBI cautioned users, holders and traders of virtual currencies regarding financial, operational, legal, consumer protection and security risks. It also stated that virtual currencies were not authorised by a central bank or monetary authority. (Reserve Bank of India)

The warnings were followed by increasing regulatory concern.

6.2 The 2018 RBI circular

In 2018, the RBI directed entities regulated by it not to deal in or provide services facilitating transactions involving virtual currencies.

The circular had a major impact on cryptocurrency businesses because banking access is fundamental to operating a financial technology business.

6.3 Supreme Court intervention

The constitutional position changed with Internet and Mobile Association of India v. Reserve Bank of India, (2020) 10 SCC 274.

The Supreme Court recognised that the RBI had wide powers to protect the financial system but concluded that the particular restriction imposed through the 2018 circular was disproportionate.

The decision is important because it illustrates that India’s cryptocurrency debate cannot be separated from constitutional principles.

Regulation may be necessary, but regulation must still be rational, evidence-based and proportionate.

6.4 Taxation from 2022

The Finance Act, 2022 introduced a specific taxation regime for income arising from the transfer of VDAs.

Section 115BBH imposes tax at 30% on income from transfer of a VDA. The law also restricts deductions, other than the cost of acquisition, and does not permit the set-off or carry-forward of losses from VDA transfers in the manner ordinarily available for many other forms of income. (Income Tax India)

Section 194S separately provides for tax deducted at source in relation to consideration for transfer of specified VDAs, subject to the statutory conditions and thresholds.

The tax framework was a significant development because it moved the law beyond simply warning citizens about crypto-assets.

However, taxation should not be confused with comprehensive legal recognition.

The fact that the State taxes an activity does not necessarily mean that the State has accepted the asset as legal tender or approved it as an investment product.

7. Cryptocurrency and the Prevention of Money Laundering Act

One of the most significant developments occurred when specified activities involving VDAs were brought within the PMLA framework.

The Financial Intelligence Unit-India (FIU-IND) has developed a regulatory framework for VDA service providers. FIU-IND currently publishes specific AML/CFT guidelines for reporting entities providing services related to VDAs, including updated guidance issued in January 2026. (Financial Intelligence Unit)

This means that crypto businesses operating within the relevant statutory scope cannot simply treat themselves as ordinary technology companies with no financial compliance responsibilities.

They may have obligations concerning:

• customer identification;
• KYC;
• record keeping;
• suspicious transaction reporting;
• AML/CFT controls;
• compliance programmes;
• reporting to FIU-IND; and
• appointment of appropriate compliance personnel.

The importance of this framework became particularly clear in relation to offshore platforms. In October 2025, FIU-IND announced compliance action against 25 offshore VDA service providers under the PMLA framework. (Press Information Bureau)

This demonstrates an important feature of cryptocurrency regulation: the borderless nature of blockchain transactions creates a significant jurisdictional problem.

A platform may be incorporated outside India while serving Indian customers.

Therefore, purely territorial regulation is unlikely to be sufficient.

8. The Major Legal Challenges

8.1 Absence of a comprehensive statute

The most fundamental difficulty is the absence of one comprehensive law dealing with the cryptocurrency ecosystem.

At present, different legal rules address different aspects of the sector.

Tax law deals with income.

The PMLA deals with money laundering and specified VDA service activities.

The RBI focuses on monetary and financial stability.

The FIU-IND deals with AML reporting obligations.

However, the system does not comprehensively answer questions such as:

• Who may operate a crypto exchange?
• What capital should an exchange maintain?
• What rules should apply to custody of customer assets?
• What happens if an exchange becomes insolvent?
• What disclosures should token issuers provide?
• Which crypto-assets should be classified as securities?
• How should stablecoins be regulated?
• What remedies does a consumer have after losing crypto assets?
• How should market manipulation be punished?

A comprehensive law could provide clarity without necessarily giving every cryptocurrency the same legal treatment.

8.2 Regulatory uncertainty

Cryptocurrency does not fit neatly within traditional categories.

For example, Bitcoin is not the same as a share in a company.

A stablecoin may behave differently from a speculative token.

A utility token may have a different economic function from an investment token.

An NFT may represent ownership or rights connected to a digital or physical item.

DeFi protocols may not have a conventional company or intermediary operating them.

Applying one regulatory model to all of these assets would therefore be problematic.

India requires a functional and risk-based classification system.

8.3 Investor and consumer protection

Traditional financial markets contain several layers of protection.

Investors may benefit from disclosure requirements, licensed intermediaries, grievance mechanisms, audit requirements, market surveillance and regulatory enforcement.

The cryptocurrency market can operate differently.

Retail investors may purchase tokens without understanding:

• the technology behind the asset;
• the risks of extreme price volatility;
• the possibility of losing private keys;
• the risk of exchange hacking;
• the financial position of the platform;
• conflicts of interest;
• token concentration; or
• the possibility that an asset may become practically worthless.

The absence of adequate consumer protection is particularly concerning because cryptocurrency is increasingly accessible to ordinary individuals.

A regulatory system should therefore require exchanges and other intermediaries to provide clear risk disclosures in simple language.

9. Market Manipulation and Fraud

Another serious concern is manipulation.

Traditional securities markets have extensive rules against insider trading, market manipulation and misleading disclosures.

The cryptocurrency market can involve similar conduct, but the regulatory framework is less clearly defined.

Potential forms of misconduct include:

• pump-and-dump schemes;
• wash trading;
• misleading promotion;
• insider dealing;
• manipulation of token prices;
• false claims regarding token utility;
• fraudulent initial token offerings; and
• misuse of customer funds.

A comprehensive Indian law should therefore create specific offences and civil penalties for crypto-market manipulation.

10. Cybersecurity and Custody Risks

Cryptocurrency ownership is closely connected with private cryptographic keys.

If a person loses access to a private key, recovering the asset may be practically impossible in many situations.

Centralised exchanges introduce another layer of risk.

When customers leave crypto-assets on an exchange, they may not have direct control over the underlying private keys.

This creates legal questions concerning:

• ownership;
• custody;
• segregation of customer assets;
• insolvency;
• hacking;
• unauthorised transfers; and
• liability of exchanges.

A future Indian law should require regulated exchanges to maintain strict separation between their own assets and customer assets.

Customer assets should not be freely used by an exchange for unrelated business activities.

11. Cryptocurrency and Money Laundering

The decentralised and cross-border characteristics of cryptocurrency create legitimate AML concerns.

Blockchain transactions are often publicly visible, but the real-world identity behind an address may not always be immediately apparent.

This can make the system pseudonymous rather than completely anonymous.

Cryptocurrency can potentially be misused for:

• fraud;
• ransomware;
• illegal gambling;
• sanctions evasion;
• money laundering;
• terrorist financing; and
• other financial crimes.

However, regulation should avoid the simplistic assumption that cryptocurrency itself is synonymous with criminal activity.

Cash can also be used for crime, but governments do not normally prohibit all cash transactions.

The better legal approach is to identify the specific risks and regulate them proportionately.

The FATF’s international framework similarly adopts a risk-based approach and requires jurisdictions to regulate and supervise relevant virtual asset service providers for AML/CFT purposes. (FATF)

12. The Cross-Border Problem

Cryptocurrency is inherently international.

An Indian citizen can potentially interact with:

• an Indian exchange;
• an offshore exchange;
• a decentralised protocol;
• a self-hosted wallet; and
• counterparties in other jurisdictions.

This creates enforcement difficulties.

Suppose an Indian investor suffers fraud through a platform incorporated outside India. Which country’s regulator should investigate?

If an offshore exchange does not cooperate with Indian authorities, recovery may become difficult.

Therefore, Indian regulation must include strong international cooperation mechanisms.

India should also cooperate with international bodies and foreign regulators regarding:

• information sharing;
• suspicious transactions;
• beneficial ownership;
• cross-border enforcement;
• asset tracing;
• freezing and recovery of illicit assets.

The FATF’s Travel Rule is particularly relevant. It requires relevant information about the originator and beneficiary of virtual asset transfers to be obtained, held and transmitted in specified circumstances. (FATF)

13. Stablecoins: A Special Regulatory Challenge

Stablecoins deserve separate treatment.

Unlike highly volatile cryptocurrencies, stablecoins are generally designed to maintain a relatively stable value by referencing assets such as fiat currency or other reserves.

Their growth creates a regulatory problem because stablecoins can potentially perform some functions traditionally associated with money or payment systems.

Questions arise regarding:

• reserve backing;
• redemption rights;
• asset segregation;
• audits;
• governance;
• insolvency;
• consumer protection; and
• systemic risk.

A stablecoin that is widely used for payments may create significantly different risks from a speculative token.

Therefore, India should not regulate all crypto-assets through a single blanket category.

14. Decentralised Finance and DeFi

Decentralised Finance is another difficult area.

Traditional regulation usually assumes that there is an identifiable intermediary.

For example:

Bank → regulator → customer

or

Stock exchange → regulator → investor

DeFi can disrupt this model.

A smart contract may automatically execute transactions without a conventional intermediary.

This raises an important legal question:

Who should be regulated when there is no obvious intermediary?

A future law should avoid regulating software developers merely because they have written open-source code. At the same time, persons or entities exercising meaningful control over a financial service should not escape regulation simply by describing their platform as “decentralised.”

The correct approach should focus on control, economic function and risk, rather than labels.

15. Taxation: Strengths and Weaknesses

The 30% tax regime has provided the government with a mechanism to bring crypto income within the tax system. Section 115BBH specifically provides for a 30% rate and limits deductions and loss adjustment. (Income Tax India)

This approach has advantages.

First, it creates clarity about the tax treatment of gains.

Second, it reduces the possibility of taxpayers arguing that crypto income exists outside the traditional tax framework.

Third, the TDS mechanism can create transaction-level reporting information.

However, the framework also has limitations.

The strict treatment of losses may discourage legitimate participation and may not reflect the economic reality of a highly volatile market.

For example, a person may make gains on one token and substantial losses on another token. The inability to appropriately account for losses can produce a tax outcome that does not necessarily correspond to the taxpayer’s overall economic position.

There is therefore room for reconsidering whether the present tax model strikes the correct balance between revenue collection and fair taxation.

16. Should India Ban Cryptocurrency?

The strongest argument in favour of prohibition is that cryptocurrency may create risks to:

• monetary sovereignty;
• financial stability;
• consumer welfare;
• AML/CFT enforcement; and
• capital flows.

The RBI has maintained a cautious position towards private cryptocurrencies. Recent parliamentary discussions in 2026 have again highlighted the RBI’s concerns regarding financial stability and illicit finance. (Reuters)

However, prohibition also presents difficulties.

Cryptocurrency networks operate globally.

A domestic ban may not eliminate demand. Instead, activity may migrate to:

• offshore exchanges;
• peer-to-peer platforms;
• decentralised protocols; or
• self-hosted wallets.

This could make transactions less visible to regulators.

From a regulatory perspective, an activity that is visible and subject to KYC and reporting requirements may be easier to supervise than an activity that is pushed entirely underground.

Therefore, the better approach may be regulated access rather than complete prohibition, subject to the government’s assessment of systemic risks.

17. International Regulatory Lessons

India does not have to create its framework in isolation.

International experience provides several useful lessons.

The FATF has established global AML/CFT standards for virtual assets and VASPs. Its framework requires countries to regulate relevant VASPs and apply measures addressing money laundering and terrorist financing risks. (FATF)

One important lesson is that cryptocurrency regulation cannot be purely domestic.

Because digital assets cross borders instantly, regulatory cooperation is essential.

Another lesson is the importance of risk-based regulation.

Not every crypto-asset presents the same risk.

A payment-oriented stablecoin may create different risks from a meme token.

An exchange holding billions of rupees worth of customer assets should not be subject to exactly the same regulatory requirements as a small blockchain software developer.

18. Need for a Comprehensive Indian Cryptocurrency Law

India should consider enacting a dedicated Virtual Digital Assets Regulation Act or a comparable comprehensive statute.

The law should not simply repeat existing tax and AML rules.

It should address the complete lifecycle of crypto-assets.

The following framework is proposed.

18.1 Clear classification of crypto-assets

The law should classify assets based on economic function.

Possible categories could include:

1. Payment tokens
2. Investment or security tokens
3. Utility tokens
4. Stablecoins
5. NFTs
6. DeFi-related instruments
7. Other digital assets

Different categories should attract different regulatory obligations.

18.2 Licensing of exchanges

Crypto exchanges serving Indian customers should require regulatory registration or licensing.

Requirements could include:

• minimum capital;
• fit-and-proper management;
• cybersecurity standards;
• KYC procedures;
• transaction monitoring;
• periodic audits;
• asset segregation;
• record keeping;
• complaints handling; and
• regulatory reporting.

18.3 Customer asset segregation

Customer assets should be legally separated from the exchange’s own assets.

This is especially important in insolvency.

If an exchange fails, customers should not have to compete with ordinary creditors merely to recover assets that were held on their behalf.

18.4 Proof of reserves and independent audits

Regulated exchanges should periodically disclose sufficient information about their reserves and liabilities.

A credible proof-of-reserves system should ideally be accompanied by independent verification.

Proof of reserves alone, however, is not enough.

A platform could have substantial assets while also having substantial hidden liabilities.

Therefore, regulators should consider both:

assets + liabilities + governance + independent assurance.

18.5 Investor protection

A comprehensive law should establish:

• standardised risk disclosures;
• advertising rules;
• restrictions on misleading claims;
• suitability requirements for certain high-risk products;
• complaint mechanisms;
• compensation arrangements where appropriate;
• protection against fraudulent platforms.

Crypto influencers and promoters should also be subject to clear disclosure requirements.

A person promoting a token should disclose whether they have a financial interest in it.

18.6 Market abuse provisions

The law should specifically address:

• insider trading;
• market manipulation;
• wash trading;
• pump-and-dump schemes;
• fraudulent token issuance;
• false statements; and
• misuse of customer information.

The regulator should have investigation and enforcement powers comparable to those available in other financial markets, where appropriate.

19. Which Regulator Should Control Cryptocurrency?

A major institutional question is whether one regulator should control the entire crypto sector.

A single regulator may provide clarity, but cryptocurrency performs multiple economic functions.

A better approach could be a multi-regulator framework with a clearly designated lead authority.

For example:

RBI

Responsible primarily for:

• payment-related crypto-assets;
• stablecoins with payment functions;
• monetary and financial stability issues;
• interaction between crypto-assets and regulated banking institutions.

SEBI

Responsible primarily for:

• crypto-assets functioning as securities;
• investment products;
• market intermediaries;
• investor protection;
• market manipulation.

FIU-IND

Responsible for:

• AML/CFT supervision;
• registration/reporting obligations under PMLA;
• suspicious transaction reporting.

Income Tax Department

Responsible for:

• taxation;
• TDS;
• reporting and tax compliance.

This division would avoid forcing one regulator to become an expert in every aspect of blockchain technology.

20. The Constitutional Dimension

Any comprehensive regulation must comply with constitutional principles.

The right to carry on a lawful occupation or business under Article 19(1)(g) may become relevant when restrictions are imposed on crypto businesses.

At the same time, Article 19(6) permits reasonable restrictions in the public interest.

The Supreme Court’s decision in Internet and Mobile Association of India v. RBI provides an important constitutional lesson.

The Court did not say that cryptocurrency businesses must remain free from regulation.

Rather, it examined whether the specific restriction imposed by the RBI was proportionate to the objective being pursued.

This principle should guide future legislation.

The government has legitimate interests in protecting:

• financial stability;
• consumers;
• national security;
• taxation;
• AML/CFT systems.

But the existence of a legitimate objective does not automatically make every regulatory restriction constitutional.

21. Cryptocurrency and Financial Inclusion

There is also a potential positive side to digital assets.

Blockchain technology can potentially reduce transaction costs and create new financial products.

Cross-border transactions are one area where blockchain-based systems may offer technological advantages.

However, financial inclusion cannot be achieved merely by making crypto-assets available.

A genuinely inclusive financial system must also consider:

• digital literacy;
• financial literacy;
• accessibility;
• consumer protection;
• fraud prevention;
• affordability.

The government should therefore distinguish between promoting blockchain technology and promoting speculative cryptocurrency trading.

India can encourage blockchain innovation without necessarily encouraging unrestricted speculation.

22. Balancing Innovation and Regulation

One of the greatest dangers of cryptocurrency regulation is overregulation.

Blockchain startups can operate globally.

If India creates excessively burdensome compliance requirements, legitimate companies and skilled professionals may move to jurisdictions with clearer and more predictable regulatory systems.

On the other hand, weak regulation may expose consumers and the financial system to serious risks.

The solution is therefore not “no regulation” or “maximum regulation.”

It is proportionate regulation.

Low-risk blockchain software development should not be regulated in the same way as an exchange holding customer funds.

A small experimental token should not necessarily face exactly the same requirements as a stablecoin intended for large-scale payments.

23. Proposed Regulatory Model

A practical Indian framework could be structured around six pillars:

Pillar 1: Classification

Identify crypto-assets according to their economic function and risk.

Pillar 2: Licensing

Require exchanges, custodians and other significant intermediaries to obtain regulatory approval.

Pillar 3: Consumer Protection

Introduce clear disclosures, advertising standards, complaints mechanisms and asset custody safeguards.

Pillar 4: AML/CFT

Strengthen KYC, transaction monitoring, suspicious transaction reporting and international cooperation.

Pillar 5: Market Integrity

Prohibit manipulation, insider dealing, fraudulent token offerings and deceptive practices.

Pillar 6: Innovation

Create regulatory sandboxes and proportionate compliance requirements for legitimate blockchain businesses.

This model would allow India to regulate the risks without automatically treating all blockchain activity as harmful.

24. Findings of the Study

The research produces several findings.

First, cryptocurrency is not presently equivalent to legal tender in India. Taxation of VDAs should not be interpreted as making cryptocurrencies official currency.

Second, India has already moved beyond a purely prohibition-oriented approach. Taxation and PMLA obligations demonstrate that the government is regulating specific aspects of the ecosystem.

Third, the present framework remains fragmented.

Fourth, consumer protection remains one of the most important gaps.

Fifth, offshore exchanges create major enforcement difficulties.

Sixth, cryptocurrency regulation cannot be designed solely from a domestic perspective because blockchain transactions are inherently cross-border.

Seventh, different crypto-assets create different risks and therefore require differentiated regulation.

Finally, the constitutional principle of proportionality must remain relevant when restrictions are imposed on cryptocurrency-related businesses.

25. Recommendations

Based on the analysis, the following recommendations are proposed:

1. Enact a comprehensive VDA law

India should consider introducing dedicated legislation that consolidates the regulatory principles applicable to digital assets.

2. Adopt a risk-based approach

The law should not treat Bitcoin, stablecoins, NFTs, DeFi applications and security tokens as identical.

3. Create a clear regulatory structure

The roles of RBI, SEBI, FIU-IND and the Income Tax Department should be expressly defined.

4. Introduce mandatory licensing for major intermediaries

Exchanges and custodians serving Indian users should meet minimum regulatory standards.

5. Protect customer assets

Customer crypto-assets should be segregated from the exchange’s own assets.

6. Strengthen cybersecurity

Licensed entities should meet minimum cybersecurity, wallet-security and incident-reporting requirements.

7. Establish market-abuse rules

Manipulation, fraud and insider trading should be specifically addressed.

8. Strengthen international cooperation

India should cooperate with foreign regulators to deal with offshore exchanges and cross-border crypto-related crimes.

9. Improve tax fairness

The government should periodically examine whether the existing VDA tax structure appropriately reflects economic gains and losses.

10. Establish regulatory sandboxes

Blockchain startups should have a controlled environment in which innovative products can be tested under regulatory supervision.

26. Conclusion

Cryptocurrency has forced governments to reconsider traditional ideas about money, property, financial intermediaries and jurisdiction.

India’s approach has developed gradually. The RBI initially responded through warnings and restrictions. The Supreme Court’s 2020 decision established an important constitutional limitation on disproportionate regulatory action. The introduction of VDA taxation in 2022 brought crypto transactions firmly within the tax system, while the extension of PMLA obligations to relevant VDA service providers strengthened India’s AML/CFT framework.

These developments are significant, but they do not amount to a comprehensive cryptocurrency regulatory framework.

The central weakness of India’s present approach is therefore not necessarily the absence of regulation. Rather, it is the absence of a coherent regulatory architecture.

A mature legal framework should answer basic questions concerning licensing, classification, custody, consumer protection, market manipulation, stablecoins, DeFi, taxation, insolvency and cross-border enforcement.

At the same time, regulation should not be so restrictive that legitimate blockchain innovation becomes impossible.

The appropriate solution for India is neither unrestricted acceptance nor an unrealistic attempt to eliminate cryptocurrency completely. A better approach is risk-based regulation that protects the public while allowing responsible technological development.

India’s regulatory objective should ultimately be to ensure that innovation does not become a substitute for accountability.

Cryptocurrency may be decentralised, but the responsibility to protect consumers, maintain financial integrity and enforce the law cannot be decentralised.

The future of cryptocurrency regulation in India should therefore be based on a simple principle: regulate the activity according to the risk it creates, rather than regulating the technology merely because it is new.

References

A. Statutes and Legal Materials

1. Income-tax Act, 1961, particularly Sections 2(47A), 115BBH and 194S.
2. Prevention of Money Laundering Act, 2002.
3. Finance Act, 2022.
4. Relevant notifications and rules concerning Virtual Digital Assets and PMLA reporting entities.

B. Judicial Authority

Internet and Mobile Association of India v. Reserve Bank of India, (2020) 10 SCC 274.

C. Government and Regulatory Sources

1. Reserve Bank of India, RBI cautions users of Virtual Currencies against Risks, 24 December 2013.
2. Income Tax Department, Government of India, Section 115BBH – Tax on income from virtual digital asset.
3. Income Tax Department, Government of India, statutory definition of Virtual Digital Asset.
4. Financial Intelligence Unit-India, AML & CFT Guidelines for Reporting Entities Providing Services Related to Virtual Digital Assets.
5. Press Information Bureau, Ministry of Finance, FIU-IND issues notices for non-compliance to 25 offshore Virtual Digital Assets Service Providers, 1 October 2025.

D. International Materials

1. Financial Action Task Force (FATF), Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers.
2. FATF, Virtual Assets: Targeted Update on Implementation of the FATF Standards on VAs and VASPs, 2025.
3. FATF, Virtual Assets: Targeted Update on Implementation of the FATF Standards on VAs and VASPs, 2023.
4. FATF, materials concerning the Travel Rule and Recommendation 15.

E. Contemporary Developments

Recent 2026 reporting indicates that cryptocurrency policy remains under active consideration in India, with the RBI continuing to raise concerns regarding financial stability and illicit finance. Parliamentary discussions have also considered possible interim regulatory arrangements while a broader framework is debated.

Suggested Citation Style

For a law-school submission, you can use Bluebook/ILI style consistently. For example:

Internet and Mobile Association of India v. Reserve Bank of India, (2020) 10 SCC 274.

For legislation:

Income-tax Act, 1961, § 115BBH (India).

For an online regulatory document:

Financial Intelligence Unit-India, AML & CFT Guidelines for Reporting Entities Providing Services Related to Virtual Digital Assets (Jan. 8, 2026).