Regulation of Cryptocurrency in India- Tax, Legal Status & Policies

• Cryptocurrency is not recognised as legal tender in India, but trading is permitted through registered exchanges

• The Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and Ministry of Finance govern cryptocurrency, focusing on financial stability and investor protection through established regulatory frameworks

• The proposed Cryptocurrency Bill aims to secure the crypto ecosystem

• Stay updated on regulations, use compliant exchanges, and adhere to taxation rules to safeguard your crypto investment

Cryptocurrency has been in the market for a few years but is not as popular for several reasons, one of them being ambiguity about its legal status. However, with technological advancement throughout the nation and world, the government’s stance on crypto is evolving. 

If you are planning to invest, being familiar with the crypto regulations in India is crucial. Since these rules and regulations affect your investment, knowing them will help you better plan your investment and maximise your returns. 

The legal status of cryptocurrency is not yet clear. As of 2025, crypto is not recognised as legal tender. This means that you cannot use it instead of the local currency to make payments. However, investing in crypto is not illegal, and you can trade through registered exchanges.

Though cryptocurrency is not as strictly regulated as other avenues, several authorities oversee different aspects of crypto. These are, 

• Reserve Bank of India (RBI) 

• Securities and Exchange Board of India (SEBI) 

• Ministry of Finance

These regulatory bodies help ensure the efficient operation of cryptocurrency in India and protect investors. Here is a brief overview of their roles:

The RBI primarily focuses on ensuring the protection of India’s financial system and its stability. One of the RBI’s cryptocurrency guidelines was issued in 2018, under which crypto transactions were banned. But, this was overturned in 2020 by the Supreme Court of India. 

Apart from this, the RBI has issued several warnings about the volatile nature of crypto and its legal ambiguity, as well as the risk it poses due to lack of regulation. It has also stressed the importance of a framework to oversee the crypto market and protect investors.

SEBI helps establish a clear framework of how digital assets like crypto are to be managed. Through its guidelines, SEBI has tried to create a stable crypto ecosystem to safeguard investors. Here are the steps this regulatory body has taken:

• Classification of assets into utility and security tokens, each with separate regulations

• Mandated disclosures from exchanges and issuers for better transparency and prevention of fraud

• Requirement of licenses for service providers and crypto exchanges

• Regulations like combating the financing of terrorism (CFT), anti-money laundering (AML), and several strong cybersecurity measures

• Grievance redressal system and initiatives for investor education

The Ministry of Finance determines the tax framework for crypto. The current tax implications for cryptocurrency are as follows:

• 30% tax on profits from crypto

• 1% TDS on sale of crypto exceeding ₹50,000 (₹10,000 in some cases)

Through this and its other regulations, like the Prevention of Money Laundering Act (PMLA), the Ministry of Finance aims to prevent illegal activities conducted through crypto.

The Cryptocurrency Bill (The Cryptocurrency and Regulation of Official Digital Currency Bill), which was introduced in 2021, has not yet passed. The main aim of the bill is to ensure: 

• Structured and secure ecosystem for the crypto market 

• Investor protection 

• Financial stability 

• Enhanced market integrity 

Here are some important propositions in this bill:

• Restricting private cryptocurrency to manage the risks like fraud and money laundering

• Establishing CBDC (Central Bank Digital Currency) for better financial inclusion

• Establishing a regulatory framework to balance innovation and oversight

Crypto regulations in India are evolving, and ensuring that you adhere to them is crucial to protect your investment. Here are some easy tips on how you can do that:

• Check the updates from the regulatory bodies to stay informed about any changes. You can do this by subscribing to reputable news sources or by visiting the official website of the authorities. 

• Use exchanges that comply with authorities like RBI’s cryptocurrency guidelines. You should also ensure that they are registered with the Financial Intelligence Unit (FIU). 

• Follow taxation rules for both the profit and sale of your crypto holdings to avoid fines that can eat into your returns. 

With the government’s stance on crypto evolving, make sure that you are adhering to the latest rules and regulations. It is best to invest with a strategy that is tailored to your investment goals and risk tolerance. This will help you mitigate the risks that crypto’s unregulated and volatile nature poses, and enjoy the gains that it has the potential to offer. 

The legal status of cryptocurrency depends on your use. It is not recognised as a legal tender, meaning you cannot use it as a medium of exchange. However, you can trade in crypto through the registered exchange platforms.

Yes. The gains you make from your cryptocurrency investment are at 30% as per Section 115BBH. You also need to pay 1% TDS in case of sale of crypto exceeding ₹50,000 (₹10,000 in some cases).

Cryptocurrency is unregulated as a legal tender in India. However, there is a proposed bill - The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 - that aims to regulate the market. 

As per the proposed bill, The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, the government may restrict private cryptocurrencies and introduce an RBI-issued central bank digital currency (CBDC) that will regulate crypto and oversee compliance.

Here are some key documents that you should keep on hand:

• Receipts of sale, transfer, or disposal of cryptocurrency

• Record of the transactions you make on the crypto exchange

• Details of the transactions, such as date, purpose, and crypto asset address

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