Author: Sahajal Meena from Dharmashastra National Law University
To the Point
India’s policy on cryptocurrency has shifted considerably in recent years. In 2018, the Reserve Bank of India (RBI) prohibited banks from interacting with cryptocurrency exchanges, however the Supreme Court overturned this circular in Internet and Mobile Association of India v. RBI [(2020) SCC online SC 275], considering the restriction disproportionate to its purposes. Since then, the government has not enacted a dedicated law on crypto. Instead, it has used existing statutes (like tax law and anti-money laundering rules) to regulate virtual digital assets (VDAs). The 2022 budget introduced a flat 30% tax on crypto gains and 1% TDS on transactions. Meanwhile, the RBI has experimented with a sovereign digital currency (the “Digital Rupee”). In May 2025 the Supreme Court noted that India’s crypto laws are “completely obsolete” and urged Parliament to legislate clearer rules.
Use of Legal Jargon
Cryptocurrency / Virtual Digital Asset (VDA): Digital tokens using cryptography for transactions, often decentralized (e.g. Bitcoin, Ethereum). Under Indian drafts, VDAs encompass crypto coins and tokens.
• Blockchain: The distributed ledger technology underlying most cryptocurrencies; it records transactions in linked “blocks” across many nodes.
• CBDC (Central Bank Digital Currency): is a digital form of a country’s sovereign currency issued and regulated by its central bank. Unlike cryptocurrencies such as Bitcoin, a CBDC is legal tender backed by the state and represents a direct liability of the central bank, similar to cash.
• Fundamental Right to Trade (Art. 19(1)(g)): Constitutional right protecting business. The Supreme Court in IMAI v. RBI held that a blanket ban on crypto violated the freedom to carry on trade.
• Proportionality Test: A legal principle requiring that any restriction on fundamental rights be the least intrusive means. The Court applied this test in IMAI v. RBI, finding the RBI’s crypto ban disproportionate.
• PMLA (Prevention of Money Laundering Act, 2002): India’s primary anti-money-laundering law. As of March 2023, the government notified that Virtual Asset Service Providers (VASPs) are “reporting entities” under the PMLA, bringing them under stringent KYC/AML compliance.
• Reporting Entity: In PMLA, entities (banks, financial institutions, etc.) that must report suspicious transactions. VASPs (crypto exchanges, wallets, etc.) are now treated as reporting entities.
• KYC (Know Your Customer): Mandatory client verification process. Crypto firms must obtain and verify customer identities and report suspicious activity under PMLA rules.
The Proof
Cryptocurrencies operate on blockchain ledgers that enable peer-to-peer digital transactions without central intermediaries. In India, cryptocurrencies aren’t exactly illegal, but there aren’t clear rules around them either. The laws are still quite vague and incomplete. In 2018, the RBI prohibited banks from facilitating cryptocurrency trading. In 2020 the Supreme Court unanimously overturned this ban, holding that the RBI’s circular violated the fundamental right to trade (Article 19(1)(g)) and failed the proportionality test. The Court emphasized that restrictions on trade must be the “least intrusive measure”, effectively mandating more balanced regulation of virtual currencies.
In lieu of a specific crypto law, the government has used existing laws. The 2022 Union Budget imposed a flat 30% tax on earnings from VDAs and required a 1% TDS on transfers. These measures brought cryptocurrencies into the tax net, signaling that India treats crypto as legitimate property (subject to taxation) but not as currency. To curb illicit finance, the Finance Ministry also brought crypto assets under anti-money laundering rules: in March 2023 it expanded the definition of “reporting entity” in the PMLA to explicitly include any person dealing in VDAs. As a result, crypto exchanges and wallet providers must now follow the same KYC, record-keeping, and suspicious-transaction reporting requirements as banks.
Earlier drafts anticipated stronger measures. In 2021, the government drafted the Cryptocurrency and Regulation of Official Digital Currency Bill, which aimed to ban private cryptocurrencies like Bitcoin while allowing India’s own digital currency (CBDC) that the Reserve Bank of India would bring out.. The bill aimed to prohibit minting, holding, or trading in non-official coins, reflecting concerns about volatility and criminal misuse. However, no final law has been enacted. Instead, India is exploring alternatives: the RBI issued a pilot Digital Rupee (e₹) starting December 2022. This CBDC, issued and guaranteed by the central bank, aims to modernize payments without directly restricting private crypto ownership.
In the judiciary, concerns about regulatory gaps have surfaced repeatedly. During recent hearings, the Supreme Court declared that India’s cryptocurrency regulations are “completely obsolete” and asked Parliament to act. The Court noted the “big grey area” in crypto regulation and has declined to legislate from the bench, stating that framing rules is for the legislature. In actuality, in November 2023, the Court declined to set crypto regulations, stating that “Parliament will do it”. This has put pressure on the government: media reports indicate a forthcoming discussion paper on crypto policy (drawing on IMF/FSB guidance) to solicit public input.
Overall, India’s current framework hinges on piecemeal measures. Crypto trading remains legal (banking services are permitted again post-2020), and holders must file tax returns on gains. Exchanges are regulated under PMLA as VASPs, subject to AML/KYC supervision. The RBI is promoting its CBDC to provide a secure digital alternative. No complete ban exists, but without a dedicated law the landscape stays uncertain.
Abstract
India has taken a cautious, evolving stance toward cryptocurrencies. A 2020 Supreme Court decision struck down the RBI’s crypto ban as disproportionate, affirming that crypto trade is protected under Article 19(1)(g). Since then, the government has not passed a specific crypto law but has applied taxes (30% on gains) and AML rules (under the PMLA) to regulate the sector. The RBI launched a pilot Central Bank Digital Currency (e₹) to provide an official digital money. Recently the Supreme Court observed that India’s crypto regulations are “completely obsolete”, urging Parliament to enact clear legislation. In summary, Indian crypto policy today hinges on indirect regulation and judicial guidance, with formal legal frameworks still in progress.
Case Laws
Internet & Mobile Assn. of India v. Reserve Bank of India (2020) 10 SCC 274: Supreme Court invalidated RBI’s 2018 circular banning banking services to crypto exchanges, holding it violated the freedom of trade under Article 19(1)(g) and failed the proportionality test. This landmark ruling restored bank access to crypto firms.
Justice K.S. Puttaswamy v. Union of India (2017) 10 SCC 1: A nine-judge bench unanimously held that the right to privacy is a fundamental right under the Constitution. This judgment underpins any digital regulation, ensuring that personal data and online activities (including crypto transactions) receive constitutional protection.
Conclusion
India stands at a crossroads with cryptocurrencies. The Supreme Court has stressed that blatant restrictions on cryptocurrency are unconstitutional without legislative support. For now, the government has opted for indirect control: taxing crypto income heavily, extending AML/KYC rules, and accelerating a sovereign digital currency. Moving forward, India will need balanced legislation that fosters fintech innovation while guarding against fraud, money laundering, and systemic risk. This likely means clear definitions of VDAs, regulated frameworks for exchanges, and alignment with global standards (like FATF’s VASP guidelines). At the same time, regulators must respect constitutional rights (e.g. trade and privacy). The Court’s latest warning urged Parliament to pass a comprehensive cryptocurrency law. Such a statute – complemented by executive rules – could provide the legal certainty investors and innovators seek, while protecting consumers and the financial system.
FAQs
Are cryptocurrencies legal in India? Yes. India has not banned crypto ownership or trading. The Supreme Court allowed exchanges to operate by striking down the RBI’s banking ban. Crypto is treated as property/asset under tax laws. However, crypto firms must comply with existing regulations (tax, AML). • How are cryptocurrency gains taxed? Crypto profits are taxed at a flat 30% under section 115BBH of the Income Tax Act, with no allowance for loss set-offs. An additional TDS is charged on all transactions involving bitcoin • What is India’s Digital Rupee (e₹)? India’s Digital Rupee (e₹) is India’s Central Bank Digital Currency (CBDC)—a fully regulated, digital equivalent of the Indian rupee, issued and backed by the Reserve Bank of India (RBI). • How does anti-money laundering law apply to crypto? Since March 2023, any crypto exchange, wallet provider, or VASP is a “reporting entity” under the PMLA. They must undertake client KYC, keep transaction records, and notify the Financial Intelligence Unit of any questionable cryptocurrency transactions. In practice, this means crypto firms follow the same AML/CFT rules as banks, aligning India with FATF recommendations. • Has Parliament passed any crypto regulations? Not yet. A draft Cryptocurrency and Regulation of Official Digital Currency Bill was floated in 2021 (proposing to ban private crypto and introduce a CBDC), but no final bill has been enacted. Instead, regulatory policy is evolving through budgetary measures and AML rules. The Supreme Court has urged the legislature to fill this gap. • Does the Supreme Court regulate crypto? The Supreme Court has clarified that setting crypto policy is the government’s role, not the judiciary’s. It has, however, actively protected legal rights in the crypto context (e.g. free trade) and consistently urged the administration to pass unambiguous laws. • Can crypto exchanges operate in India? Yes. Crypto exchanges legally operate in India. They can accept deposits and offer trading services, though banks and payment platforms may still exercise caution. All exchanges registered with regulatory bodies must follow RBI’s restricted lending guidelines and PMLA/KYC rules for customers. • What is the way forward for India? Experts suggest that India adopt a balanced framework: allow responsible crypto innovation (like crypto-blockchain projects) under licensing, enforce strict AML/CFT compliance on all crypto service providers, and incorporate consumer protection norms (e.g., disclosures). Global best practices (such as the FATF travel rule and uniform VASP registration) can guide India’s lawmaking. Ongoing government initiatives (discussion papers, inter-ministerial committees) indicate that comprehensive crypto legislation may be forthcoming.
