How India Regulates Cryptocurrencies and Digital Assets

India's cryptocurrency policy is a case study in regulatory ambiguity with revenue clarity: the government has not legalised cryptocurrency trading but has not banned it either; it has imposed extremely punitive taxes (30% flat rate on all gains, with no offset for losses across assets; 1% Tax Deducted at Source on transactions above ₹50,000) while simultaneously developing its own Central Bank Digital Currency (the e-Rupee). 

The Finance Act 2022 introduced the Virtual Digital Asset (VDA) taxation framework — treating crypto gains like winnings from gambling rather than investment income, with no long-term capital gains benefit and no loss offsetting. 

Representational Image: How India Regulates Cryptocurrencies and Digital Assets

This punitive taxation structure effectively discourages Indian crypto trading without banning it; domestic crypto exchange volumes fell approximately 90% after the 2022 tax framework; Indian traders migrated to offshore exchanges (Binance, OKX, KuCoin) to avoid the tax, reducing domestic exchange revenue without eliminating crypto activity.

The RBI has consistently expressed scepticism about private cryptocurrencies — Governor Shaktikanta Das called crypto a "threat to macroeconomic stability" and a "serious concern" in multiple public statements. The government introduced the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 in the winter session Lok Sabha agenda but never tabled it; subsequent sessions saw it repeatedly deferred without explanation. 

In parallel, the RBI launched the e-Rupee CBDC pilot (retail CBDC, December 2022; wholesale CBDC, October 2022) — developing a state-controlled digital currency as the preferred alternative to private cryptocurrencies. 

The current regulatory position (May 2026) is: no ban, no comprehensive regulation, prohibitive taxation, regulatory classification as "property" for income tax and as "virtual digital assets" for compliance reporting, and pending money laundering compliance requirements under PMLA.

What You Need to Know

• VDA tax framework (Finance Act 2022): 30% flat tax on VDA gains (no offset for losses from one VDA against another; no long-term capital gains benefit); 1% TDS on transactions above ₹50,000 per year; income from mining, staking, airdrops, and hard forks taxed as income; no grey area — any gain is taxable.
• Impact on Indian exchanges: WazirX (India's largest exchange) and CoinDCX reported approximately 90% volume decline after the 2022 tax framework; trading migrated to offshore exchanges; WazirX's significant 2024 hack (approximately $230 million stolen) and subsequent Singapore court-supervised restructuring further damaged domestic exchange confidence.
• PMLA and crypto: the government brought Virtual Digital Asset Service Providers (VDASPs) under the Prevention of Money Laundering Act in 2023 — requiring KYC, transaction reporting, and suspicious transaction filing; this brings Indian crypto exchanges under the PMLA compliance framework comparable to banks.
• e-Rupee CBDC: RBI's retail CBDC (e₹-R) pilot expanded to multiple banks and cities; transactions are denominated in existing rupee units; available on participating bank apps; no interest paid on CBDC holdings; positioned by RBI as reducing currency management costs, enabling programmable payments, and supporting financial inclusion.
• Cryptocurrency Bill: The Cryptocurrency and Regulation of Official Digital Currency Bill 2021 appeared in the Lok Sabha's winter session agenda but was never introduced for debate; since then, the government has not publicly committed to a comprehensive crypto regulatory framework; industry operates under the PMLA compliance framework and VDA taxation without sector-specific legislation.

How It Works in Practice

1. The 30% tax logic and its effects: The 30% flat rate without loss offset reflects the government's view that crypto speculation should be heavily taxed while genuine investors should use regulated securities markets; the practical effect is that crypto is legal for holding but economically punishing for active trading; this is regulation-by-taxation rather than regulation-by-law.

2. The offshore exchange migration: Indian traders who moved to offshore exchanges (Binance India entity was briefly banned; Binance.com continued operation through offshore structures) avoid the 1% TDS but technically still owe 30% tax on gains; enforcement against offshore exchange users is difficult; the government has not systematically pursued tax compliance on offshore crypto trading.

3. WazirX hack and recovery: WazirX experienced India's largest crypto theft in July 2024 when approximately $230 million was stolen in what cybersecurity firms attributed to North Korean state hackers (Lazarus Group); WazirX's Mumbai-based operations entered Singapore High Court-supervised restructuring; users face significant losses; the incident raised questions about Indian exchange security standards and the absence of crypto exchange regulation comparable to SEBI's securities exchange oversight.

4. The CBDC vs crypto positioning: RBI's e-Rupee CBDC is explicitly positioned as the government's preferred digital payment innovation — state-issued, inflation-consistent, and within the monetary system — versus private cryptocurrencies that the RBI views as threats to monetary sovereignty. The CBDC pilot's limited consumer adoption (its transaction volumes are tiny compared to UPI) suggests that when UPI already offers instant digital payments for free, CBDC's incremental value is not obvious to consumers.

5. International regulatory alignment: India has participated in the Financial Stability Board's (FSB) crypto asset regulatory framework and the FATF's anti-money laundering crypto guidance; India's PMLA-based approach aligns with FATF's "same activity, same risk, same rules" framework; India's position in global crypto governance discussions supports both financial stability concerns about private crypto and the development of CBDCs as the preferred digital currency form.

What People Often Misunderstand

• 30% tax is on gains, not on total transaction value: The tax applies to the net gain (selling price minus acquisition cost); a trade that breaks even pays no tax; the 1% TDS on transaction value is withheld at the time of sale and credited against annual tax liability.
• Crypto is not banned in India: Despite the RBI's scepticism and the government's discouraging tax structure, owning and trading crypto is legal; it is heavily taxed, which is different from banned; the Cryptocurrency Bill that would have banned private crypto was never introduced.
• The CBDC and UPI serve different purposes: The e-Rupee is a digitisation of physical currency rather than an improvement of the payment system; UPI already provides instant digital payments; the CBDC's value proposition — programmability, offline use, central bank liability rather than commercial bank liability — is real but not yet demonstrated to consumers.
• India's PMLA crypto compliance has improved exchange accountability: Requiring KYC and suspicious transaction reporting from Indian crypto exchanges is a genuine improvement in financial crime prevention; it does not make crypto investment safe but does reduce anonymous dark-market use.
• The offshore exchange tax gap is a genuine compliance challenge: Hundreds of thousands of Indian users who trade on offshore exchanges technically owe Indian tax on gains; the government has not systematically pursued enforcement; this creates an unequal compliance burden between onshore and offshore exchange users.

What Changes Over Time

A comprehensive Cryptocurrency and Digital Assets Bill — if eventually introduced — would resolve the current regulatory ambiguity; the government's stated approach is that existing PMLA, IT Act, and VDA tax frameworks are sufficient without sector-specific legislation. 

The FSB's global crypto regulatory framework (published 2023, being implemented by G20 members) may accelerate India's development of sector-specific crypto regulation as international peer pressure builds.

Sources and Further Reading

• Drishti IAS — Digital India: https://www.drishtiias.com/daily-updates/daily-news-analysis/10-years-of-digital-india
• American Chase — AI regulations India (VDA section): https://americanchase.com/generative-ai-regulations-india/
• Protean — DPI 2024: https://www-proteantech-in.translate.goog/articles/dpi-2-0-2-4-developments/
• PIB — RBI CBDC: https://pib.gov.in
• Jackson School — India Cybersecurity 2025: https://jsis.washington.edu/news/cybersecurity-profile-2025-india/

(This series is part of a long-term editorial project to explain the structures, institutions, technologies, and policy frameworks that shape governance in India for a global audience. Designed as a 25-article briefing cluster on Digital India, Platforms & AI Governance, this vertical examines how India is building and regulating one of the world's largest digital societies — from Aadhaar, UPI, DigiLocker, Digital Public Infrastructure (DPI), and fintech innovation to data protection, cybersecurity, platform regulation, artificial intelligence governance, digital inclusion, online rights, and the future of the state's relationship with technology. Written in an accessible format for diplomats, investors, researchers, technology professionals, NGOs, civil society actors, students, academics, policymakers, and international observers, the series seeks to explain both how India's digital architecture is designed and how it functions in practice across a population of more than 1.4 billion people. Particular attention is given to the opportunities, trade-offs, institutional debates, and governance challenges created by rapid digital transformation. This is Vertical 8 of a larger 20-vertical knowledge architecture being developed by IndianRepublic.in under the editorial direction of Saket Suman. All articles are protected under applicable copyright laws. All Rights Reserved.)