Author:RITU PARNA, National Law University, Meghalaya
To the Point
India’s legal approach to cryptocurrency stands on uncertain and unsteady ground. On one hand, there is no express statutory ban on trading, mining, or investing in cryptocurrencies. On the other hand, the absence of a clear legislative framework leaves all stakeholders—users, exchanges, regulators, and courts—operating within a legal vacuum.
The Reserve Bank of India (RBI) initially imposed a ban in 2018 on banks facilitating crypto-related transactions. However, this was quashed by the Supreme Court in 2020, citing the violation of the constitutional right to trade under Article 19(1)(g). The judgment protected crypto activity but highlighted the lack of legal clarity.
Despite growing adoption and significant investments by Indian users, the Parliament has not passed any law regulating cryptocurrencies as of June 2025. This regulatory silence has led to inconsistent administrative decisions, conflicting signals from the executive, and legal confusion at both national and state levels.
Meanwhile, the Finance Ministry introduced taxation measures in 2022—imposing a 30% flat tax on crypto gains and a 1% TDS on transactions—signaling de facto recognition of crypto as a taxable asset. Additionally, FIU (Financial Intelligence Unit) registration was made mandatory for crypto exchanges under the anti-money laundering (AML) regime.
Courts have recognized the legitimacy of crypto trading in multiple rulings. However, both the Supreme Court and High Courts have consistently stressed that the final regulatory authority lies with Parliament, not the judiciary. Most recently, the Supreme Court, in May 2025, criticized the delay in legislative action and warned that unregulated crypto resembles a “polished hawala system,” reinforcing the urgency for a structured law.
In summary, India is currently walking a tightrope: crypto is not illegal, yet not regulated; courts have intervened to protect rights, but the legislature has not yet acted; tax and AML compliance exist, but without a statutory spine. This ambiguity fosters innovation and investment—but also illicit use and financial risk. A well-drafted legal framework is essential to bring certainty, safeguard public interest, and guide future innovation in the digital finance space.
Use of Legal Jargon
Cryptocurrency, as a rapidly evolving financial instrument, has brought a host of legal and constitutional terms into active use. Understanding these concepts is essential to comprehend the regulatory and judicial discourse surrounding crypto in India. Below are the key legal jargons applied in this context:
1. Legal Tender
Legal tender refers to the currency that must be accepted if offered in payment of a debt. In India, only the Indian Rupee issued by the RBI qualifies as legal tender under the Coinage Act, 2011. Cryptocurrencies, though used for transactions and investment, do not possess this status—making them non-legal tender digital assets.
2. Article 19(1)(g) – Freedom of Trade and Occupation
This Article of the Constitution of India guarantees citizens the right to practice any profession, or to carry on any occupation, trade, or business. In Internet and Mobile Association of India v. RBI (2020), the Supreme Court held that the RBI’s circular banning crypto banking violated this right, as it was not a reasonable restriction under Article 19(6).
3. Doctrine of Proportionality
This constitutional principle requires that any restriction on a fundamental right must be reasonable, necessary, and the least restrictive means to achieve the objective. The Supreme Court applied this doctrine while invalidating RBI’s 2018 circular, emphasizing that the restriction lacked empirical data to show actual harm caused by crypto exchanges.
4. Judicial Review
Judicial review refers to the power of courts to examine the constitutionality or legality of executive or legislative actions. In the crypto context, the Supreme Court exercised judicial review to strike down the RBI ban, reaffirming that even regulatory decisions must meet constitutional standards.
5. Regulatory Arbitrage
This term refers to exploiting gaps or inconsistencies in laws across jurisdictions to bypass stricter regulations. Due to India’s lack of a crypto-specific statute, several investors and exchanges operate in a grey zone, benefiting from regulatory arbitrage by shifting assets to less restrictive environments.
6. Know Your Customer (KYC) and Anti-Money Laundering (AML)
These are mandatory compliance standards requiring financial institutions to verify customer identities and monitor transactions for suspicious activity. Under the Prevention of Money Laundering Act (PMLA), 2002, crypto exchanges must now adhere to these standards by registering with the Financial Intelligence Unit (FIU-IND).
7. Asset Classification
The legal dilemma of whether cryptocurrencies are currencies, commodities, securities, or assets persists in India. Globally, regulatory bodies like the U.S. SEC and UK’s FCA have offered classifications. In India, cryptocurrencies are currently taxed as “virtual digital assets” (VDAs) under the Income Tax Act, though no statutory classification exists.
8. Mens Rea and Criminal Liability
In cases involving crypto-related fraud or scams, courts assess mens rea—the guilty mind—to determine criminal intent under provisions of the Indian Penal Code (IPC) and the Information Technology Act, 2000. However, lack of a crypto-specific penal framework often leads to reliance on general provisions, which may not capture the complexities of decentralized finance.
9. Extra-Territorial Jurisdiction
Since most blockchain operations are decentralized and cross-border, Indian law enforcement faces challenges asserting extra-territorial jurisdiction. Mutual legal assistance treaties (MLATs) and international cooperation are crucial in such contexts.
10. De Facto vs. De Jure Recognition
While crypto lacks de jure (legal) recognition through statute, the government has granted de facto (practical) recognition through taxation and AML compliance mechanisms. This duality adds to the regulatory ambiguity.
These legal jargons are not mere vocabulary—they shape the judicial reasoning, regulatory expectations, and policy outcomes around cryptocurrency. As the legal framework evolves, these terms will continue to define the contours of legitimacy, protection, and responsibility in India’s crypto landscape.
The Proof
A clear understanding of the current status of cryptocurrency in India demands an analysis of authoritative facts, legislative steps, judicial interpretations, and regulatory developments:
1. RBI Circular – April 2018
- The Reserve Bank of India issued a circular on April 6, 2018, prohibiting banks and financial institutions from dealing in or providing services for virtual currencies (VCs).
- It cited risks related to consumer protection, market integrity, and money laundering.
2. Supreme Court Strikes Down RBI Circular – March 2020
- In Internet and Mobile Association of India v. RBI, the apex court held the RBI’s action unconstitutional for failing the proportionality test.
- The court emphasized that there was no empirical evidence of harm caused by crypto trading platforms that would justify such a severe restriction.
3. Introduction of Crypto Taxation – Union Budget 2022
- India introduced a flat 30% tax on income from transfer of virtual digital assets (VDAs) under Section 115BBH of the Income Tax Act, 1961.
- A 1% TDS (Tax Deducted at Source) was imposed on crypto transactions exceeding ₹50,000 annually.
4. Anti-Money Laundering Obligations – 2023
- In March 2023, the Ministry of Finance brought crypto exchanges under the Prevention of Money Laundering Act (PMLA), 2002, mandating registration with the Financial Intelligence Unit – India (FIU-IND).
- Exchanges now have to follow KYC, report suspicious transactions, and maintain data as per AML guidelines.
5. Supreme Court Commentary – May 2025
- The Court observed that in the absence of a legal framework, cryptocurrencies are becoming tools for “polished hawala,” and warned of systemic financial abuse.
- It criticized the Union Government for delaying regulatory action, despite previous judicial nudges.
6. Parliamentary Inertia
- Draft Bills like the Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019 and the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 were proposed but never enacted.
- As of June 2025, no dedicated cryptocurrency legislation has been passed by the Indian Parliament.
7. Adoption Statistics
- As per industry estimates, India had over 270 million crypto users in 2024.
- Major international exchanges such as Coinbase and Binance re-entered the Indian market after registering with FIU-IND, reflecting market maturity despite the legal uncertainty.
These developments confirm that cryptocurrency in India exists in a state of regulated informality—it is not outlawed, but not legislatively governed either.
Abstract
Cryptocurrencies in India operate in a legally undefined space—neither illegal nor legally sanctioned. While the Supreme Court has safeguarded the right to trade in digital assets under Article 19(1)(g), the absence of a legislative framework creates significant risks and inconsistencies. Although regulatory responses like taxation and AML enforcement have offered some structure, the overarching law remains absent. This article explores the legal, judicial, and regulatory developments surrounding cryptocurrency in India, highlighting the dangers of legislative inertia and proposing a roadmap for legal clarity and balanced regulation.
Case Laws
Below is a list of key judicial decisions and observations that shape the current legal stance on cryptocurrency in India:
1. Internet and Mobile Association of India v. Reserve Bank of India
Citation: (2020) 10 SCC 274
- Facts: RBI had banned banks from dealing with crypto entities.
- Held: Supreme Court quashed the RBI circular, holding it violated Article 19(1)(g).
- Doctrine Applied: Doctrine of Proportionality – restriction must be reasonable, necessary, and not excessive.
- Impact: Revived legal banking support for crypto exchanges and reaffirmed trade freedom.
2. Supreme Court Observation – May 2025
Case: PIL on crypto-related fraud (Writ Petition dismissed with remarks)
- Held: The Court refused to frame crypto regulations but urged Parliament to act.
- Observation: Crypto activity, in the absence of regulation, may facilitate “polished hawala” or untraceable financial flows.
3. Orissa High Court – Yes World Token Case (2023)
Facts: Crypto investment scheme challenged under the Odisha Protection of Interests of Depositors (OPID) Act.
- Held: The court held that crypto trading does not fall under money circulation or prize chit activities.
- Significance: Reinforced that crypto is not per se illegal and must be distinguished from fraudulent schemes.
4. Supreme Court Dismissal – 2023 PIL on Crypto Mining
Facts: A PIL sought judicial guidelines for mining and trading regulations.
- Held: Dismissed; the Court reiterated the legislature’s exclusive domain over economic policy and regulation.
- Principle: Judicial restraint in policy-making.
These precedents underscore a consistent judicial philosophy: protect rights, insist on legislation, and avoid judicial overreach in matters requiring expert regulation.
Conclusion
India currently finds itself at the intersection of technological innovation and regulatory ambiguity. While cryptocurrency is not banned, the lack of a clear legislative framework has led to inconsistent enforcement, investor confusion, and vulnerability to financial abuse. The Supreme Court has protected the fundamental right to trade in cryptocurrencies under Article 19(1)(g), yet also emphasized that comprehensive regulation is a matter for the legislature—not the judiciary.
Despite attempts to control the ecosystem through taxation and anti-money laundering measures, these steps offer only fragmented regulation. The absence of a foundational statute has resulted in a “de facto” recognition without “de jure” clarity. As cryptocurrency continues to evolve rapidly, the legal vacuum can no longer be sustained without risking national financial integrity and investor protection.
The Way Forward: Key Recommendations
- Enact a Dedicated Cryptocurrency Law
- Classify crypto as a digital asset, not legal tender.
- Define and regulate categories like utility tokens, stablecoins, NFTs, and DeFi assets.
- Establish a Multi-Regulator Framework
- RBI: monetary and payment system oversight
- SEBI: securities tokens and investment products
- FIU-IND: AML/CFT enforcement
- A proposed Digital Assets Regulatory Authority (DARA) for unified oversight
- Introduce a Licensing and Compliance Regime
- Mandatory registration of crypto exchanges, wallets, and custodians
- Enforce KYC/AML norms with real-time reporting obligations
- Implement Risk-Based Taxation
- Reconsider the 30% flat rate and 1% TDS to avoid driving activity underground
- Permit loss offsets and introduce slabs for small retail investors
- Enable Innovation Through Regulatory Sandboxes
- Allow startups to test blockchain applications under supervision
- Promote ethical Initial Coin Offerings (ICOs) with investor protection mechanisms
- Create a Public Awareness Campaign
- Educate users about risks, scams, taxation, and legal obligations
- Periodic Review of Legislation
- Introduce a sunset clause and mandate biennial review to adapt to technological changes
A balanced legal framework—neither overly prohibitive nor recklessly permissive—is the need of the hour. It will not only provide legal certainty but also position India as a global leader in the responsible adoption of blockchain technologies.
FAQs
Q1: Is cryptocurrency legal in India?
Answer: Yes, it is legal to own, trade, and invest in cryptocurrencies. However, they are not recognized as legal tender, and there is no dedicated regulatory framework yet.
Q2: Can banks provide services to crypto exchanges?
Answer: Yes. After the 2020 Supreme Court judgment, banks can serve crypto businesses, though some may still proceed cautiously due to RBI advisories.
Q3: Is there any tax on cryptocurrency in India?
Answer: Yes. As per the Finance Act 2022:
- 30% tax on income from transfer of crypto assets
- 1% TDS on transactions above ₹50,000 annually
- No set-off of losses or deductions allowed
Q4: Do I need to register anywhere to trade crypto?
Answer: As an individual investor, no registration is needed. However, exchanges must register with the Financial Intelligence Unit – India (FIU-IND) under AML guidelines.
Q5: Are there any penalties for using cryptocurrency?
Answer: Using crypto in fraudulent schemes or for illegal purposes (e.g., money laundering, tax evasion) is punishable under existing laws like the Indian Penal Code and PMLA, even though there’s no specific crypto penal law yet.
Q6: Can I use cryptocurrency to buy goods and services in India?
Answer: Technically, you can, but most businesses do not accept it due to lack of legal tender status. Transactions are also discouraged by RBI for day-to-day commercial use.
Q7: Is the government planning to ban cryptocurrency in the future?
Answer: There is no formal plan to ban cryptocurrency as of June 2025. The government is expected to introduce a comprehensive bill to regulate—not prohibit—crypto activities.
Q8: What are some risks of trading cryptocurrency in India?
Answer:
- Market volatility and speculative losses
- Regulatory uncertainty
- Possibility of scams and fraudulent ICOs
- Inadequate consumer protection due to lack of specific laws
