Crypto Is Legal in India. So What's Missing?

In India, it is legal to buy and sell cryptocurrency. Gains are taxed at a clear rate. Exchanges serving Indian users must register with the Financial Intelligence Unit and meet AML standards. At the same time, the tax treatment remains strict, the boundary between regulators has not been finally settled, and a dedicated statute for the asset class has not yet arrived. What exists is a system that has brought greater transparency and revenue while leaving important questions about market structure and longer-term policy direction open. This is neither a full embrace nor a restriction. It is a cautious, compliance-led approach that has delivered measurable results on tax and reporting while the larger architecture continues to evolve.

The tax rules provide the most concrete element of the current regime. Under Section 115BBH of the Income Tax Act, income from the transfer of virtual digital assets is taxed at a flat 30%. Only the cost of acquisition may be deducted. Losses cannot be set off against other income, and a 1% tax is deducted at source on transactions. The Union Budget of 2026 left this structure unchanged. 

In late July, the Central Board of Direct Taxes issued detailed guidance on reporting obligations for exchanges and intermediaries. The guidance strengthens data flows to tax authorities and aligns more closely with international crypto-asset reporting standards, without altering the underlying rate. Tax collections from virtual digital assets have risen over recent assessment years. For many retail participants, the rules are straightforward even if the rate is high. For those building larger or longer-horizon positions, the inability to offset losses and the flat rate create a different calculation compared with other asset classes.

The compliance layer has also become more settled. Virtual Digital Asset Service Providers must register with FIU-IND under the Prevention of Money Laundering Act.

They are required to conduct customer due diligence, monitor transactions, and report suspicious activity. More than fifty platforms have completed registration. Offshore entities that continued to serve Indian users without registering have faced notices, penalties, and access restrictions in some cases. This framework has improved visibility into flows and pushed non-compliant platforms out of the market. Estimates place the number of KYC-verified crypto users in India in the tens of millions, with assets under management in the range of several thousand crore rupees. The sector is no longer operating in a vacuum on the AML front.

What remains less settled is the broader regulatory boundary. SEBI has examined listing standards, disclosure requirements, and possible approaches to crypto-linked products.

The Reserve Bank has continued to highlight financial-stability considerations and the challenges of monitoring privately issued digital assets, particularly those held offshore. In its engagement with the Parliamentary Standing Committee on Finance, the RBI underlined risks related to illicit use and the difficulty of applying conventional regulatory tools to the asset class. The two institutions therefore approach the subject from different starting points, and a definitive allocation of responsibilities has not yet been made.

The Parliamentary Standing Committee on Finance addressed this gap in its July report. It noted that beyond taxation and AML requirements, a regulatory vacuum still exists on matters such as custody, market conduct, and investor protection. The committee recommended that the government comprehensively examine the need for an appropriate statutory framework. Pending such legislation, it suggested an interim mechanism through recognised self-regulatory organisations operating under the oversight of a designated regulator such as the RBI or SEBI. The proposed SRO would establish minimum standards on governance, transparency, disclosure, grievance redressal, and codes of conduct. Industry participants have described the recommendation as a practical bridge while a fuller law is considered.

Viewed together, the present arrangements reflect a consistent priority on revenue collection, transaction visibility, and containment of illicit finance risks. The tax regime and FIU registration requirements have produced clearer data and higher compliance.

The absence of a dedicated market-structure law and the continuing difference in emphasis between SEBI and the RBI mean that questions about product design, custody standards, and institutional participation remain open. An interim self-regulatory arrangement could improve day-to-day standards without requiring an immediate legislative resolution.

Other jurisdictions have chosen different balances between tax treatment, licensing, and market rules. India’s current mix keeps the activity legal and monitored while the policy process continues. The practical path for participants remains the same: use FIU-registered platforms, maintain complete transaction records, and stay attentive to official announcements from the Ministry of Finance, SEBI, the RBI, and FIU-IND. A more complete statutory framework, if and when it arrives, would be the natural next step in clarifying the remaining open questions around regulatory responsibilities and market conduct. Until then the mid-2026 position is one of defined tax and compliance obligations alongside an evolving discussion on the fuller architecture.

Source:

1. Central Board of Direct Taxes. “Guidance Note on Reporting Obligations for Virtual Digital Asset Transactions.” New Delhi, July 2026. https://www.thehindubusinessline.com/money-and-banking/cryptocurrency/it-dept-issues-detailed-crypto-reporting-norms-tightening-tax-oversight-without-changing-levy/article71268942.ece

2. Government of India. Income Tax Act, 1961, Section 115BBH (Tax on income from virtual digital assets). https://www.incometaxindia.gov.in/w/section-115bbh-1

3. Press Information Bureau. “Financial Intelligence Unit (FIU IND) Issues Notices for Non-Compliance to Offshore Virtual Digital Assets Service Providers.” Ministry of Finance, Government of India, October 1, 2025. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2173758

4. “India Taxes Crypto, but RBI Still Wants Distance. Can Both Coexist?” Business Standard, July 3, 2026. https://www.business-standard.com/industry/news/india-crypto-taxes-tds-legal-digital-assets-rbi-stablecoins-bitcoins-126070300825_1.html

5. “IT Dept Issues Detailed Crypto Reporting Norms, Tightening Tax Oversight without Changing Levy.” Hindu Business Line, July 26, 2026. https://www.thehindubusinessline.com/money-and-banking/cryptocurrency/it-dept-issues-detailed-crypto-reporting-norms-tightening-tax-oversight-without-changing-levy/article71268942.ece

6. “Parliamentary Finance Committee Calls for Regulatory Framework for Virtual Digital Assets.” MediaNama, July 27, 2026. https://www.medianama.com/2026/07/223-parliamentary-panel-crypto-vda-regulation/

7. “RBI Backs Crypto Ban, Tax Department Warns of Evasion Risks.” Hindu Business Line, July 8, 2026. https://www.thehindubusinessline.com/money-and-banking/rbi-backs-crypto-ban-tax-department-warns-of-evasion-risks/article71197159.ece