India's approach to cryptocurrency has been defined less by a single comprehensive statute and more by a layered set of tax, foreign exchange, and anti-money-laundering measures that together constitute a de facto regulatory regime — one that permits trading in virtual digital assets while making that activity commercially unattractive and closely monitored. Understanding this patchwork matters for any business with exposure to digital assets, whether as an exchange, an investor, or a corporate treasury considering diversification.

The Tax Framework That Defines Current Policy

The Finance Act, 2022 introduced a specific tax regime for "Virtual Digital Assets" (VDAs), a term broad enough to capture cryptocurrencies, non-fungible tokens, and similar digital assets. Income from the transfer of VDAs is taxed at a flat 30%, with no deduction permitted for expenses other than the cost of acquisition, and — critically — losses from one VDA cannot be set off against gains from another, let alone against other heads of income. A 1% tax deducted at source applies to VDA transfers above specified thresholds, primarily as a mechanism to create a transaction trail for tax authorities rather than as a revenue measure in itself.

Anti-Money-Laundering Coverage

In March 2023, the Ministry of Finance brought virtual digital asset service providers — exchanges, custodial wallet providers, and similar intermediaries — within the ambit of the Prevention of Money Laundering Act, 2002. This means VDA service providers are now "reporting entities" obligated to conduct customer due diligence, maintain transaction records, and report suspicious transactions to the Financial Intelligence Unit, aligning India's approach with Financial Action Task Force recommendations on virtual asset service providers.

Notably, no legislation in India explicitly bans holding or trading cryptocurrency, and the Supreme Court's 2020 ruling in Internet and Mobile Association of India v. RBI struck down an earlier Reserve Bank of India circular that had effectively barred banks from servicing crypto exchanges — a ruling that remains the operative constitutional precedent on the sector.

What Remains Genuinely Unsettled

  • There is no dedicated legislation defining the legal status of cryptocurrency as property, currency, or a distinct asset class — a gap that has downstream implications for contract enforcement, inheritance, and insolvency treatment of crypto holdings.
  • The Reserve Bank of India has repeatedly voiced concerns about financial stability risks and has continued to advocate for a framework closer to prohibition than regulation, creating persistent uncertainty about the sector's long-term regulatory trajectory.
  • India's own Central Bank Digital Currency pilot, the e-Rupee, is being developed and tested in parallel — a signal that the government's medium-term preference may be a state-backed digital currency architecture rather than accommodation of private cryptocurrencies.
  • Cross-border coordination through the G20, where India held the 2023 presidency and pushed for a globally coordinated crypto regulatory framework, suggests future domestic policy may be shaped as much by international consensus as by unilateral domestic legislation.

The Bottom Line

Any business operating in India's digital asset space today is operating within a regime that is functional but deliberately unfavourable — taxed punitively, monitored closely, and legally undefined at its core. Treating this as a stable long-term framework would be a mistake; treating it as a live compliance and policy-risk area to monitor closely is the more accurate posture.