Cryptocurrency has emerged as a transformative force in the global financial landscape, offering decentralized, borderless, and digital alternatives to traditional monetary systems. As nations grapple with how to regulate this rapidly evolving technology, India stands at a pivotal crossroads. While the country has not outright banned digital assets, their legal status remains ambiguous—a complex mix of taxation policies, judicial interventions, and regulatory hesitation.
This article explores the current state of cryptocurrency in India, examining the evolving legal framework, key court rulings, taxation rules, and the challenges and opportunities that lie ahead for investors, businesses, and policymakers.
The Reserve Bank of India’s Evolving Stance on Cryptocurrency
The Reserve Bank of India (RBI), as the nation’s central monetary authority, has historically approached cryptocurrency with caution. Concerns over financial stability, consumer protection, and the potential misuse of digital assets for money laundering or terror financing have shaped its regulatory posture.
In 2013 and 2017, the RBI issued advisories warning the public about the risks associated with virtual currencies—highlighting volatility, fraud, and lack of regulatory oversight. But the most significant action came in April 2018, when the RBI released a circular prohibiting banks and financial institutions from providing services to individuals or entities dealing in cryptocurrencies. This effectively severed the banking lifeline for crypto exchanges, severely restricting trading activity and prompting several platforms to suspend operations.
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However, this ban was short-lived in practice. In a landmark decision in 2020, the Supreme Court of India overturned the RBI’s directive in Internet and Mobile Association of India v. RBI, ruling it unconstitutional. The court emphasized that the restriction violated Article 19(1)(g) of the Indian Constitution—the fundamental right to carry on any trade or profession—especially since no evidence of widespread harm had been presented to justify such a sweeping measure.
The judgment revitalized India’s crypto ecosystem, allowing exchanges to reconnect with banking partners and restoring investor confidence. Yet, despite this judicial clarity, regulatory uncertainty persists due to the absence of comprehensive legislation.
Legislative Efforts: The Cryptocurrency Bill That Never Passed
Over the past few years, the Indian government has considered various legislative approaches to manage digital assets. One of the most discussed proposals was the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.
This bill aimed to ban all private cryptocurrencies while paving the way for a government-issued digital rupee—what is now known as the Central Bank Digital Currency (CBDC). The rationale behind the proposed ban was to prevent illicit financial flows and maintain monetary sovereignty. However, industry stakeholders raised strong objections, arguing that an outright prohibition would push innovation underground, discourage technological development, and isolate India from the global blockchain revolution.
Due to mounting criticism and the fast-moving nature of the crypto market, the bill was never introduced in Parliament. As of 2025, there is still no dedicated law governing private cryptocurrencies in India—a gap that continues to create confusion among users and businesses alike.
Taxation of Cryptocurrency Under the Finance Act, 2022
While legal recognition remains elusive, India has taken a firm stance on taxation. The Finance Act of 2022 marked a turning point by formally bringing virtual digital assets (VDAs), including cryptocurrencies and NFTs, under the income tax regime.
Key tax provisions include:
- 30% tax on crypto gains: Under Section 115BBH, profits from the transfer of digital assets are taxed at a flat rate of 30%, with no allowance for deductions except the cost of acquisition.
- No loss offsetting: Losses incurred from crypto trading cannot be set off against other income or carried forward to future years.
- 1% TDS (Tax Deducted at Source): Section 194S mandates a 1% TDS on all crypto transactions exceeding specified thresholds, ensuring transaction traceability and improving tax compliance.
These measures signal that while the government may not endorse cryptocurrency as legal tender, it acknowledges its economic presence and seeks to regulate it through fiscal policy.
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Key Judicial Rulings Shaping Crypto Policy
Indian courts have played a crucial role in shaping the trajectory of cryptocurrency regulation.
Internet and Mobile Association of India v. RBI (2020)
This landmark ruling nullified the RBI’s banking ban and affirmed that regulating crypto does not justify eliminating it entirely. The Supreme Court stressed proportionality in regulation and upheld constitutional rights related to trade and business.
Nishith Desai Associates v. Union of India (2021)
This public interest litigation challenged the lack of a clear regulatory framework and called for legislative clarity to protect investors and promote innovation in fintech.
RBI v. Unocoin (2019)
This case highlighted enforcement challenges faced by early crypto exchanges operating in a gray area. Despite no explicit ban at the time, Unocoin faced scrutiny—underscoring the need for transparent rules to protect legitimate businesses.
Together, these cases reflect growing judicial support for balanced regulation over prohibition.
Regulatory Challenges Facing India’s Crypto Ecosystem
Several critical challenges hinder the healthy development of cryptocurrency in India:
- Regulatory ambiguity: Without a clear legal framework, investors and businesses operate under constant uncertainty.
- Money laundering risks: The pseudonymous nature of blockchain transactions raises AML (Anti-Money Laundering) concerns.
- Consumer protection: High volatility and frequent scams have led to significant financial losses for retail investors.
- Environmental impact: Proof-of-work mining consumes vast energy—raising sustainability questions in a country with energy constraints.
- Global compliance: Cross-border transactions require alignment with international standards like those set by the Financial Action Task Force (FATF).
India must address these issues through coordinated policy action rather than reactive measures.
The Road Ahead: Toward a Balanced Regulatory Framework
For India to harness the full potential of blockchain and digital assets, it must adopt a forward-thinking regulatory model that balances innovation with risk management.
Recommended steps include:
- Enacting a comprehensive crypto law that distinguishes between utility tokens, security tokens, and stablecoins.
- Supporting the rollout of the Digital Rupee (e₹) as a safe, regulated alternative to private cryptocurrencies.
- Strengthening KYC/AML norms across exchanges to combat illicit activities.
- Promoting investor education campaigns to improve financial literacy around digital assets.
- Collaborating internationally to harmonize regulations for cross-border crypto transactions.
With over 100 million crypto users estimated in India—one of the largest bases globally—the need for clarity has never been greater.
Frequently Asked Questions (FAQs)
Q: Is cryptocurrency legal in India?
A: Cryptocurrency is not explicitly illegal. While the RBI’s 2018 banking ban was struck down in 2020, there is still no comprehensive law legalizing or banning private digital assets.
Q: Is there a cryptocurrency law in India?
A: No dedicated law exists yet. The proposed Cryptocurrency Bill has not been passed. However, taxation under the Finance Act, 2022 implies regulatory recognition.
Q: Is crypto considered legal tender in India?
A: No. Only the Indian Rupee (INR) is recognized as legal tender. Cryptocurrencies cannot be used as official currency for everyday transactions.
Q: Do I have to pay tax on cryptocurrency in India?
A: Yes. Gains from crypto sales are taxed at 30% under Section 115BBH, and a 1% TDS applies to qualifying transactions under Section 194S.
Q: Can I use cryptocurrency for purchases in India?
A: Some private merchants accept crypto, but it lacks government recognition as a payment method. Users assume regulatory and financial risks when doing so.
Q: What did the Supreme Court rule about crypto in 2020?
A: In IMAI v. RBI, the Court struck down the RBI’s banking ban, calling it disproportionate and unconstitutional under Article 19(1)(g).
India's journey with cryptocurrency reflects a broader global struggle: how to innovate without compromising stability. By embracing smart regulation instead of fear-based bans, India can emerge as a leader in the digital economy—empowering investors, fostering innovation, and building a secure financial future.
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