Introduction: Navigating India's Crypto Legal Landscape

Cryptocurrency has become a hot topic in India, with millions of Indians investing in digital assets like Bitcoin, Ethereum, and other cryptocurrencies. However, the legal landscape around crypto in India has been complex and ever-changing. If you are a crypto investor or trader in India, understanding the current laws is crucial to stay compliant and avoid legal troubles.

This comprehensive guide will help you understand the latest cryptocurrency laws in India in simple, easy-to-understand language. We will cover recent Supreme Court judgments, tax implications, compliance requirements, and provide you with a practical checklist to ensure you are following all the rules.

The Indian government's approach to cryptocurrency has evolved significantly over the years. From initial skepticism and attempts at banning to recognizing crypto as a taxable asset, the journey has been eventful. Today, while cryptocurrencies are not banned in India, they operate in a carefully regulated environment with specific tax obligations and compliance requirements.

Current Legal Status of Cryptocurrency in India

As of 2025, cryptocurrency is legal to buy, sell, and hold in India. The Indian government recognizes cryptocurrencies as "Virtual Digital Assets" (VDAs) under the Income Tax Act. This means you can legally own and trade cryptocurrencies, but there are important distinctions to understand.

What You Can Do Legally

Trading and Investment: You can buy, sell, and trade cryptocurrencies through registered exchanges in India. Popular exchanges like WazirX, CoinDCX, and others operate legally and provide platforms for crypto trading.

Holding as Investment: You can hold cryptocurrencies as a long-term investment, similar to how you might hold stocks or mutual funds.

What You Cannot Do

Using as Currency: Cryptocurrencies are not recognized as legal tender in India. This means you cannot use Bitcoin or any other cryptocurrency to pay for goods and services in regular transactions.

Accepting as Payment: Businesses cannot accept cryptocurrencies as payment for goods and services.

The Reserve Bank of India (RBI) has been clear that cryptocurrencies should not be used as a medium of exchange or payment method. Instead, the RBI is promoting its own Central Bank Digital Currency (CBDC), known as the Digital Rupee, as the official digital currency for India.

Recent Supreme Court Judgments on Cryptocurrency

The Supreme Court of India has played a crucial role in shaping the cryptocurrency landscape in the country. Recent judgments and observations from the apex court provide important insights into how the legal system views digital assets.

May 2025: Supreme Court Calls Crypto a "Parallel Economy"

In a significant development in May 2025, the Supreme Court of India expressed serious concerns about the unregulated nature of cryptocurrencies. During the hearing of SHAILESH BABULAL BHATT v. THE STATE OF GUJARAT AND ANR (SLP(Crl) No. 4036/2025 II-B), Justice Suryakant made several important observations.

Key Observations by Justice Suryakant:

"..This is a whole parallel economy running with such coins and is a danger to the economy of the country." This statement highlights the court's concern about the scale and impact of cryptocurrency trading in India…

...If you can tax it at 30%, also please regulate it as you have recognised it by taxing it. The court pointed out the contradiction in the government's approach - imposing high taxes on crypto while not providing a comprehensive regulatory framework.”

April 2025: Court Refuses to Frame Crypto Laws

Earlier in April 2025, the Supreme Court declined to entertain a petition seeking the creation of rules to regulate cryptocurrencies. A bench comprising Justice B R Gavai and Justice Augustine George Masih made it clear that creating crypto laws is not the court's job.

Key Statements from the Court:

"This lies within the domain of policymakers. How can we issue such directions? We cannot lay down the law."

This judgment clarifies that any comprehensive crypto regulation must come from the government and Parliament, not from court directions.

Understanding the Regulatory Framework

India's cryptocurrency regulatory framework involves multiple government agencies, each with specific roles and responsibilities.

Key Regulatory Bodies

Reserve Bank of India (RBI): The RBI is India's central bank and plays a crucial role in monetary policy and financial stability. While the RBI cannot ban cryptocurrencies, it continues to express concerns about their impact on financial stability and promotes the Digital Rupee (CBDC) as an alternative.

Securities and Exchange Board of India (SEBI): SEBI regulates the securities market in India. While cryptocurrencies are not currently classified as securities, SEBI has been studying the crypto market and may play a larger role in regulation in the future.

Ministry of Finance: The Ministry of Finance is responsible for tax policy and has been the primary driver of crypto taxation rules. The 30% tax on crypto gains and the 1% TDS were introduced through the Finance Ministry.

Financial Intelligence Unit India (FIU-IND): FIU-IND is responsible for anti-money laundering (AML) compliance. Since March 2023, all crypto exchanges and service providers must register with FIU-IND and follow strict AML guidelines.

Cryptocurrency Taxation in India: What Every Investor Must Know

Taxation is perhaps the most important aspect of crypto compliance in India. The government has implemented a comprehensive tax framework for cryptocurrencies that every investor and trader must understand and follow.

The 30% Flat Tax Rule

Since April 1, 2022, all profits from cryptocurrency transactions are subject to a flat 30% tax under Section 115BBH of the Income Tax Act. This is one of the highest tax rates in the world for crypto investments.

Key Features of the 30% Tax:

No Distinction Between Short-term and Long-term Gains: Unlike other investments where long-term capital gains get preferential tax treatment, crypto gains are taxed at 30% regardless of how long you hold the asset.

No Loss Offset: If you make a loss on one crypto investment, you cannot offset it against gains from another crypto investment or any other income.

Limited Deductions: The only deduction allowed is the cost of acquisition. You cannot claim deductions for transaction fees, exchange charges, or other expenses.

The 1% TDS (Tax Deducted at Source) Rule

In addition to the 30% tax on gains, there is also a 1% TDS on crypto transactions under Section 194S of the Income Tax Act. This rule came into effect from July 1, 2022.

How TDS Works:

Threshold Limits: TDS applies when your total crypto transactions in a financial year exceed ₹50,000. For certain categories of taxpayers, the threshold is ₹10,000.

Who Deducts TDS: Crypto exchanges typically deduct TDS on behalf of users. However, for peer-to-peer transactions or transactions on international exchanges, you may need to handle TDS yourself.

# Individual Income Tax Slab Rates for FY 2024-25

Anti-Money Laundering (AML) and KYC Compliance

Since March 2023, all cryptocurrency exchanges and service providers in India must comply with strict Anti-Money Laundering (AML) regulations under the Prevention of Money Laundering Act (PMLA).

FIU-IND Registration and Compliance

Mandatory Requirements for Crypto Exchanges:

Registration with FIU-IND: All crypto exchanges must register with FIU-IND as "reporting entities" under the PMLA.

Customer Due Diligence (CDD): Exchanges must implement comprehensive KYC procedures including identity verification, address verification, PAN card verification, and bank account verification.

Suspicious Transaction Reporting (STR): Exchanges must monitor transactions for suspicious patterns and report them to FIU-IND.

Record Keeping: All customer transaction records must be maintained for at least 5 years.

What This Means for Individual Investors

Enhanced KYC Requirements: When you sign up with a crypto exchange, you will need to provide extensive documentation and undergo verification processes.

Transaction Monitoring: All your crypto transactions are monitored for suspicious patterns.

Privacy Considerations: Your crypto transaction data is shared with government agencies as part of AML compliance.

FEMA Compliance for International Crypto Transactions

The Foreign Exchange Management Act (FEMA) governs foreign exchange transactions in India and has important implications for crypto investors who engage in international transactions.

Key FEMA Considerations:

Overseas Crypto Exchange Usage: Using international crypto exchanges may raise FEMA compliance issues, especially for large transactions.

Remittance Limits: If you are sending money overseas to buy crypto, you must comply with the Liberalized Remittance Scheme (LRS) limits of $250,000 per financial year.

Compliance Checklist for Crypto Investors

Before You Start Investing

- Choose a FIU-IND registered crypto exchange

- Complete full KYC verification with valid documents

- Understand the tax implications of crypto investing

- Set up proper record-keeping systems

During Your Investment Journey

- Maintain detailed records of all transactions

- Monitor your annual transaction volume for TDS implications

- Stay updated on regulatory changes

- Ensure compliance with FEMA for international transactions

At Tax Filing Time

- Calculate your crypto gains and losses accurately

- Collect all TDS certificates from exchanges

- Fill out Schedule VDA in your income tax return

- File your return before the deadline

Download our comprehensive [Cryptocurrency Compliance Checklist] for a detailed step-by-step guide to staying compliant with Indian crypto laws.

Future of Crypto Regulation in India

The cryptocurrency regulatory landscape in India is rapidly evolving. The government has announced that a discussion paper on cryptocurrency regulation will be released in June 2025, which is expected to provide clarity on the future regulatory framework.

Expected Regulatory Developments:

Comprehensive Crypto Bill: A complete regulatory framework for cryptocurrencies is expected.

SEBI Involvement: SEBI may play a larger role in crypto regulation.

Consumer Protection Measures: Enhanced consumer protection rules may be introduced.

Common Mistakes to Avoid

Tax-Related Mistakes:

- Not reporting crypto income in tax returns

- Using wrong tax rates or calculation methods

- Poor record keeping

- Ignoring TDS implications

Compliance Mistakes:

- Using unregistered exchanges

- Inadequate KYC verification

- FEMA violations for international transactions

- Not cooperating with AML investigations

Conclusion: Staying Compliant in India's Crypto Ecosystem

The cryptocurrency legal landscape in India is complex but manageable if you understand the key requirements and stay informed about regulatory developments. The most important takeaways for crypto investors and traders in India are:

Legal Status: Cryptocurrencies are legal to own and trade in India but cannot be used as currency for payments.

Tax Obligations: All crypto gains are subject to a 30% flat tax, and transactions above certain thresholds attract 1% TDS.

Compliance Requirements: Use only FIU-IND registered exchanges, complete proper KYC, and maintain detailed transaction records.

Supreme Court Position: The apex court has called for proper regulation while recognizing the government's authority to tax crypto transactions.

Future Outlook: Comprehensive regulation is expected soon, which may provide more clarity but also stricter compliance requirements.

The key to successful crypto investing in India is to prioritize compliance over everything else. While the tax rates are high and the compliance requirements are strict, following the rules protects you from legal troubles and allows you to participate in the growing crypto ecosystem legally.

Remember that this guide provides general information and should not be considered as legal or tax advice. For specific situations, always consult with qualified professionals who can provide personalized guidance based on your circumstances.

References

[1] SHAILESH BABULAL BHATT v. THE STATE OF GUJARAT AND ANR, SLP(Crl) No. 4036/2025 II-B, Supreme Court of India (May 2025)

[2] Internet and Mobile Association of India (IMAI) v. Reserve Bank of India, Writ Petition (Civil) No. 528 of 2018, Supreme Court of India (2020)

[3] Income Tax Act, 1961, Section 115BBH - Tax on income from transfer of virtual digital assets

[4] Income Tax Act, 1961, Section 194S - Tax deducted at source on payment for transfer of virtual digital asset

[5] Prevention of Money Laundering Act, 2002 and Rules thereunder

[6] Foreign Exchange Management Act, 1999 and Rules thereunder

This blog post is for informational purposes only and does not constitute legal or tax advice. Cryptocurrency regulations are subject to change, and readers should consult with qualified professionals for specific guidance. Last updated: June 2025.

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