India
Retail_Trading_Status
- Analysis ID
- #689
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- Latest
- Created
- 2025-12-12 04:24
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- 22b8e248...
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Executive Summary
Cryptocurrency trading is legal in India and formally regulated under anti-money laundering (AML) and taxation frameworks. While not recognized as legal tender, Virtual Digital Assets (VDAs) are governed by the Ministry of Finance, which mandates that all crypto exchanges (both domestic and offshore) register with the Financial Intelligence Unit (FIU-IND) to operate legally. The regulatory environment is characterized by strict compliance enforcement, including a 30% flat tax on gains and a 1% Tax Deducted at Source (TDS) on transactions, alongside persistent banking access challenges due to the Reserve Bank of India's (RBI) cautious stance.
Key Pillars
Financial Intelligence Unit - India (FIU-IND) as the primary AML/CFT regulator for Virtual Asset Service Providers (VASPs)
Ministry of Finance (Department of Revenue) for taxation and legislative oversight
Reserve Bank of India (RBI) for foreign exchange (FEMA) and banking channel oversight (historically hostile, currently cautious)
Mandatory KYC/AML compliance under the Prevention of Money Laundering Act (PMLA), 2002
Landmark Laws
Prevention of Money Laundering Act (PMLA) Notification (Notification No. S.O. 1072(E)) - Enacted: 2023-03-07
- Officially brought Virtual Digital Asset (VDA) service providers under the ambit of the PMLA, mandating them to register with FIU-IND and adhere to KYC/AML reporting norms.
- Source
Finance Act, 2022 (Section 115BBH & 194S) (Finance Act 2022) - Enacted: 2022-04-01
- Introduced a specific tax regime for VDAs: a flat 30% tax on income from transfer of VDAs (Section 115BBH) and a 1% Tax Deducted at Source (TDS) on transfers exceeding certain thresholds (Section 194S).
- Source
Supreme Court Ruling (IAMAI vs. RBI) (Writ Petition (Civil) No. 528 of 2018) - Enacted: 2020-03-04
- Struck down the RBI's 2018 circular that had prohibited banks from providing services to crypto businesses, effectively legalizing banking access for the sector.
- Source
Considerations
Strict Taxation: Flat 30% tax on gains with no provision to set off losses against other income; 1% TDS impacts high-frequency trading liquidity.
Offshore Ban Enforcement: In early 2024, FIU-IND blocked URLs of non-compliant offshore exchanges (e.g., Binance, KuCoin) until they registered and paid penalties.
Banking Friction: Despite the Supreme Court ruling, many banks remain hesitant to process crypto transactions, often disabling UPI or requiring specific approvals.
No Legal Tender Status: Crypto cannot be used for payments/settlements for goods and services within India.
FEMA Restrictions: Cross-border transfers are subject to strict Foreign Exchange Management Act controls; using the Liberalised Remittance Scheme (LRS) for crypto is often blocked.
Notes
The 'Allowed-Regulated' status is heavily skewed towards AML and Tax compliance. There is no 'Crypto License' in the prudential sense (like a banking license), but the FIU registration is a mandatory authorization to operate. Entities operating without it are actively blocked by the Ministry of Electronics and Information Technology (MeitY).
Remaining Uncertainties
- Will a comprehensive 'Crypto Bill' be introduced to define asset classes (security vs. commodity)?
- Will SEBI be formally appointed as the market conduct regulator?
- How will the RBI's ongoing pilot of the Digital Rupee (CBDC) impact private crypto regulations?
- Clarification on the legality of cross-border transfers under FEMA for retail investors.
Detailed Explanation
Detailed Explanation
Cryptocurrency trading is legal and formally regulated in India under a comprehensive framework focused on anti-money laundering compliance and taxation. The regulatory environment is characterized by strict enforcement through multiple government bodies, with Virtual Digital Assets (VDAs) not recognized as legal tender but operating under specific regulatory oversight. The Ministry of Finance serves as the primary legislative authority, while the Financial Intelligence Unit - India (FIU-IND) acts as the main anti-money laundering regulator for Virtual Asset Service Providers (VASPs). The regulatory framework was significantly strengthened through the Prevention of Money Laundering Act (PMLA) Notification (Notification No. S.O. 1072(E)) enacted on March 7, 2023, which formally brought VDA service providers under the PMLA's ambit, mandating them to register with FIU-IND and adhere to strict KYC/AML reporting norms. This legislation represents a landmark development in India's approach to cryptocurrency regulation, establishing clear compliance requirements for both domestic and offshore exchanges operating in the Indian market. The Finance Act, 2022, which took effect on April 1, 2022, introduced a specific tax regime for VDAs through Section 115BBH and Section 194S, imposing a flat 30% tax on income from transfer of VDAs and a 1% Tax Deducted at Source (TDS) on transfers exceeding certain thresholds. This taxation framework has significant implications for market participants, as it does not allow for setting off losses against other income and affects trading liquidity through the TDS mechanism. The regulatory landscape has been shaped by judicial intervention, particularly the Supreme Court ruling in IAMAI vs. RBI (Writ Petition (Civil) No. 528 of 2018) on March 4, 2020, which struck down the Reserve Bank of India's 2018 circular that had prohibited banks from providing services to crypto businesses, effectively legalizing banking access for the sector. Despite this ruling, the Reserve Bank of India maintains a cautious stance, resulting in persistent banking access challenges where many banks remain hesitant to process crypto transactions, often disabling UPI services or requiring specific approvals. The regulatory environment also includes strict enforcement against non-compliant entities, as demonstrated in early 2024 when FIU-IND blocked URLs of offshore exchanges such as Binance and KuCoin until they registered with Indian authorities and paid penalties. Cross-border transactions are subject to Foreign Exchange Management Act (FEMA) restrictions, and using the Liberalised Remittance Scheme (LRS) for cryptocurrency purposes is often blocked, reflecting the government's cautious approach to international capital flows in the digital asset space.
Summary Points
I. Regulatory Status
* Legal status: Allowed-Regulated
* Cryptocurrency trading is legal and formally regulated
* Virtual Digital Assets (VDAs) are not recognized as legal tender
* Cannot be used for payments or settlements for goods and services within India
II. Key Regulatory Bodies
* Ministry of Finance (Department of Revenue): Primary authority for taxation and legislative oversight
* Financial Intelligence Unit - India (FIU-IND): Primary AML/CFT regulator for Virtual Asset Service Providers (VASPs)
* Reserve Bank of India (RBI): Oversees foreign exchange (FEMA) and banking channels (maintains a cautious stance)
III. Important Legislation
* Prevention of Money Laundering Act (PMLA) Notification (Notification No. S.O. 1072(E))
* Enacted: March 7, 2023
* Brought VDA service providers under PMLA requirements
* Mandates registration with FIU-IND and adherence to KYC/AML reporting norms
* Finance Act, 2022 (Section 115BBH & 194S)
* Enacted: April 1, 2022
* Imposes 30% flat tax on income from transfer of VDAs
* Imposes 1% Tax Deducted at Source (TDS) on transfers exceeding certain thresholds
* Supreme Court Ruling (IAMAI vs. RBI) (Writ Petition (Civil) No. 528 of 2018)
* Decided: March 4, 2020
* Struck down RBI's 2018 circular prohibiting banking services to crypto businesses
* Effectively legalized banking access for the sector
IV. Compliance Requirements
* Mandatory FIU-IND Registration: All crypto exchanges (domestic and offshore) must register with FIU-IND to operate legally
* KYC/AML Compliance: Strict adherence required under Prevention of Money Laundering Act (PMLA), 2002
* Tax Compliance: 30% flat tax on gains with no provision to set off losses against other income
* TDS Reporting: 1% TDS on transactions impacts high-frequency trading liquidity
V. Notable Restrictions or Limitations
* Banking Access Challenges: Despite Supreme Court ruling, many banks remain hesitant to process crypto transactions
* Offshore Exchange Enforcement: FIU-IND actively blocks non-compliant offshore exchanges (e.g., Binance, KuCoin) until registration
* FEMA Restrictions: Cross-border transfers subject to strict Foreign Exchange Management Act controls
* LRS Limitations: Using Liberalised Remittance Scheme for crypto often blocked
VI. Recent Developments or Notes
* Regulatory focus is heavily skewed toward AML and Tax compliance
* No 'Crypto License' exists in prudential sense, but FIU registration is mandatory authorization
* Entities operating without FIU registration are actively blocked by Ministry of Electronics and Information Technology (MeitY)
* Regulatory environment characterized by strict compliance enforcement
Full Analysis Report
Full Analysis Report
As of late 2025, India has transitioned from a state of regulatory uncertainty to a defined 'Allowed-Regulated' regime, primarily driven by taxation and anti-money laundering (AML) compliance rather than a comprehensive market conduct law. The pivotal shift occurred when the government brought Virtual Digital Assets (VDAs) under the Prevention of Money Laundering Act (PMLA) in March 2023. This move mandated that all crypto exchanges, custodians, and wallet providers—whether domestic or offshore—register with the Financial Intelligence Unit (FIU-IND). This registration acts as a de facto license; entities that failed to comply, including major global players like Binance and KuCoin, faced website blocks and app store removals in early 2024 until they regularized their status and paid fines.
The taxation framework is among the most stringent globally, designed to discourage speculative retail participation while formally recognizing the asset class for revenue purposes. The Finance Act of 2022 introduced Section 115BBH, imposing a flat 30% tax on VDA profits without allowing deductions for expenses (other than acquisition cost) or set-offs for losses. Additionally, Section 194S mandates a 1% Tax Deducted at Source (TDS) on transactions, which has significantly improved transaction traceability but dampened trading volumes on domestic platforms. This tax data is now actively used by the Income Tax Department to monitor compliance.
Despite the legal clarity on taxation and AML registration, the operational environment remains challenging due to the Reserve Bank of India's (RBI) historical and persistent skepticism. While the Supreme Court's 2020 ruling in Internet and Mobile Association of India v. Reserve Bank of India overturned the central bank's explicit ban on banking support for crypto, the RBI continues to warn against the macroeconomic risks of 'private cryptocurrencies.' Consequently, commercial banks often restrict crypto-related payments, forcing exchanges to rely on third-party payment processors or P2P networks, creating friction for retail on-ramps.
Looking ahead, the regulatory landscape is expected to evolve further with a discussion paper on a broader policy framework anticipated in mid-2025. This may introduce asset classification (e.g., distinguishing between utility tokens and securities) and potentially assign a market conduct regulator (likely SEBI) to oversee listing standards and investor protection, moving beyond the current AML-centric oversight. Until then, the status remains 'Allowed-Regulated' with a heavy emphasis on surveillance, taxation, and strict border control for offshore entities.
As of late 2025, India has transitioned from a state of regulatory uncertainty to a defined 'Allowed-Regulated' regime, primarily driven by taxation and anti-money laundering (AML) compliance rather than a comprehensive market conduct law. The pivotal shift occurred when the government brought Virtual Digital Assets (VDAs) under the Prevention of Money Laundering Act (PMLA) in March 2023. This move mandated that all crypto exchanges, custodians, and wallet providers—whether domestic or offshore—register with the Financial Intelligence Unit (FIU-IND). This registration acts as a de facto license; entities that failed to comply, including major global players like Binance and KuCoin, faced website blocks and app store removals in early 2024 until they regularized their status and paid fines. The taxation framework is among the most stringent globally, designed to discourage speculative retail participation while formally recognizing the asset class for revenue purposes. The Finance Act of 2022 introduced Section 115BBH, imposing a flat 30% tax on VDA profits without allowing deductions for expenses (other than acquisition cost) or set-offs for losses. Additionally, Section 194S mandates a 1% Tax Deducted at Source (TDS) on transactions, which has significantly improved transaction traceability but dampened trading volumes on domestic platforms. This tax data is now actively used by the Income Tax Department to monitor compliance. Despite the legal clarity on taxation and AML registration, the operational environment remains challenging due to the Reserve Bank of India's (RBI) historical and persistent skepticism. While the Supreme Court's 2020 ruling in *Internet and Mobile Association of India v. Reserve Bank of India* overturned the central bank's explicit ban on banking support for crypto, the RBI continues to warn against the macroeconomic risks of 'private cryptocurrencies.' Consequently, commercial banks often restrict crypto-related payments, forcing exchanges to rely on third-party payment processors or P2P networks, creating friction for retail on-ramps. Looking ahead, the regulatory landscape is expected to evolve further with a discussion paper on a broader policy framework anticipated in mid-2025. This may introduce asset classification (e.g., distinguishing between utility tokens and securities) and potentially assign a market conduct regulator (likely SEBI) to oversee listing standards and investor protection, moving beyond the current AML-centric oversight. Until then, the status remains 'Allowed-Regulated' with a heavy emphasis on surveillance, taxation, and strict border control for offshore entities.
Source Evidence
Primary and secondary sources cited in this analysis
"The Virtual Digital Asset service providers are required to comply with the various provisions of the PMLA... Registration with FIU-IND is pre-requisite for a reporting entity."
"Exchange between virtual digital assets and fiat currencies... shall be an activity for the purposes of said Act."
"Income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent."
"The Circular dated 06-04-2018 is liable to be set aside on the ground of proportionality."
"Cryptocurrencies in India exist in a regulated yet evolving framework. They are permitted for trading, investment, and holding but cannot be used as legal tender."
"The Ministry has further clarified that even offshore VDA service providers must register with FIU-IND."
Web Sources (14)
Sources discovered via web search grounding
Search queries used (6)
- Is crypto trading legal in India 2025
- India crypto tax rules 2024 2025
- India cryptocurrency regulation status 2024 2025
- India FIU-IND crypto registration list and requirements
- India crypto exchange banking access 2025
- RBI stance on cryptocurrency 2024 2025
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