Cryptocurrency continues to attract millions of investors in India, but confusion around legality and regulations often leads to uncertainty. While India has not declared crypto as illegal, it has also not recognised it as legal tender. Instead, the government has created a regulatory and taxation framework that allows trading but under strict compliance norms.
Crypto trading is legal, but not recognised as currency
In India, buying, selling, and holding cryptocurrencies such as Bitcoin, Ethereum, or stablecoins is legal. The government has not banned crypto trading, and major exchanges continue to operate in compliance with Indian law.
However, crypto is not considered legal tender. This means it cannot be used as official currency to settle debts or make compulsory payments. The Reserve Bank of India (RBI) has repeatedly cautioned users about risks but has not imposed any prohibition since the Supreme Court overturned the RBI banking ban in March 2020.
Regulatory environment: No dedicated crypto law yet
India does not yet have a specific law that governs cryptocurrency. Instead, various government bodies have issued guidelines and taken regulatory steps:
1. RBI’s stance
- The RBI has expressed concerns about financial stability, money laundering, and investor protection.
- Banks are allowed to offer services to crypto users as long as they perform proper due diligence.
- RBI continues to push for strong regulations but has not banned crypto.
2. Ministry of Finance
- The government has introduced Virtual Digital Asset (VDA) classification under the Income Tax Act to regulate taxation.
- Discussions on a future regulatory framework (or crypto bill) have been ongoing, but no legislation has been passed yet.
3. FIU registration for exchanges
- In December 2023, major crypto exchanges operating in India were required to register with the Financial Intelligence Unit (FIU-IND).
- Exchanges must comply with anti-money-laundering rules and report suspicious transactions.
How cryptocurrencies are taxed in India
Taxation is the most clearly defined part of India’s crypto policy. Since 1 April 2022, cryptocurrencies fall under the category of Virtual Digital Assets (VDAs) with strict tax rules.
1. 30% tax on profits
- All gains from the sale or transfer of cryptocurrencies are taxed at 30%.
- This applies irrespective of whether the gain is short-term or long-term.
- No deduction is allowed for expenses except the cost of acquisition.
2. 1% TDS on every trade
- A 1% Tax Deducted at Source (TDS) applies to every crypto trade above ₹10,000 in a year on Indian exchanges.
- This TDS is collected by exchanges and deposited with the government.
- Traders can claim credit for this TDS while filing their income tax returns.
3. Crypto gifts are taxable
- Gifts of crypto are taxable in the hands of the recipient if the value exceeds ₹50,000, unless exempt under relatives’ category.
4. Losses cannot be set off
- Losses from crypto cannot be:
- set off against other income, or
- carried forward to future years. This is the strictest part of the tax regime.
GST implications
While there is no separate GST law for crypto:
- Crypto exchanges pay 18% GST on their service fees.
- Traders do not pay GST on the crypto itself.
- The government may introduce additional GST classifications in the future.
What the future may hold
India is moving towards a regulated crypto ecosystem:
- Discussions on a global regulatory framework continue under the G20 agenda.
- Experts expect clearer rules once the government finalises its stance.
- Meanwhile, the RBI is developing the Digital Rupee (CBDC) as an official alternative.
Crypto trading in India is legal but tightly taxed and cautiously monitored. Investors can trade freely through compliant exchanges, but must follow the 30% tax rule and 1% TDS requirements. While a dedicated crypto law is still awaited, the existing framework ensures that trading remains allowed, regulated, and taxable.
Disclaimer: This article is for general information only and does not constitute financial or tax advice.
