Author: Harleen Kaur, D. Y. Patil Law College
To the Point
India’s stance on cryptocurrency remains ambiguous. While the government has not explicitly banned cryptocurrencies, there is also no legislative framework that officially regulates them.
This regulatory void has resulted in confusion among investors, developers, and financial
institutions. Despite the introduction of taxation on virtual digital assets (VDAs), there is no formal recognition of their legal status. Consequently, the Indian crypto ecosystem operates in a state of limbo, with significant risks concerning investor protection, financial security,
and the potential for misuse. Legal Jargon
The legal discourse around cryptocurrency in India has introduced several technical terms
into mainstream policy debates. Virtual Digital Assets (VDAs), as defined under Section 2(47A) of the Income Tax Act, encompass cryptocurrencies, tokens, and NFTs. These are distinct
from fiat currency—legal tender such as the Indian Rupee—issued and controlled by the Reserve Bank of India (RBI). Blockchain, the decentralised technology underlying
cryptocurrencies, has found wide usage beyond just digital assets. The concept of a Central Bank Digital Currency (CBDC), already piloted in India in the form of the digital rupee,
represents a sovereign attempt to create state-backed digital money. Despite all these
developments, there exists no codified regulation for the use, exchange, or trading of private cryptocurrencies in India.
Proof (Status Quo)
As of mid-2025, India has no specific legislation governing cryptocurrencies. However, the Finance Act, 2022 introduced a taxation regime, imposing a flat 30% tax on gains arising from VDAs and a 1% TDS (Tax Deducted at Source) on all crypto transactions exceeding ₹10,000
under Section 194S. This legislative move sparked debates, as taxation without a legal
framework for recognition created confusion about the legitimacy of such assets. The RBI
continues to express strong reservations about private cryptocurrencies, labelling them a risk to India’s financial and monetary stability. At the same time, the central bank has launched the CBDC pilot project, indicating its interest in state-controlled digital currencies. India’s
G20 presidency in 2023 further showcased its cautious approach, where the government emphasized the need for global consensus before enacting any domestic regulatory law on crypto assets.
Abstract
The legal status of cryptocurrency in India is best described as uncertain and transitional. Although the government has taken steps to tax digital assets, it has refrained from either formally legalising or banning them. The Reserve Bank of India maintains a sceptical stance, citing concerns about money laundering, volatility, and capital flight. Investors, on the other hand, operate in an environment devoid of consumer protection, regulatory oversight, or dispute resolution mechanisms. This article explores India’s fragmented legal approach to cryptocurrencies, the impact of judicial decisions, and whether India should move toward regulation, prohibition, or strategic delay in legislating crypto.
Case Laws
A landmark judgment that shaped India’s crypto journey is Internet and Mobile Association of India v. Reserve Bank of India (2020), where the Supreme Court quashed the RBI’s 2018
circular banning banks from facilitating crypto-related transactions. The Court held that the RBI’s action violated Article 19(1)(g) of the Constitution, which guarantees the right to trade
and profession. Importantly, the Court noted that such a ban must be backed by proportional reasoning and legislative support, which was lacking in this case. This judgment effectively
reopened the crypto markets in India, but also exposed the vacuum in legal policy.
Another relevant case is K. Harish v. Union of India (2022), decided by the Karnataka High Court, where the petitioner challenged the imposition of the 30% tax on VDAs without any statutory recognition of their legality. The Court, however, declined to intervene, reasoning that the power to tax does not necessarily confer legitimacy on the underlying activity. In other words, the state may tax even a legally ambiguous or unregulated activity. This case reaffirmed the disjointed nature of India’s crypto approach, where assets can be taxed without being formally regulated.
Analysis
The arguments in favor of regulating cryptocurrencies stem largely from the need for investor protection and legal certainty. With millions of Indians investing in digital assets, the absence of regulation creates opportunities for fraud, manipulation, and cybercrime. A structured
regulatory framework would not only safeguard users but also attract responsible innovation and foreign investment. Countries like the United Kingdom, Japan, and Singapore have adopted moderate regulatory regimes, licensing crypto exchanges and imposing Anti-Money Laundering (AML) norms, thereby allowing innovation to coexist with oversight.
On the other hand, critics argue that regulation would legitimise a highly volatile and
speculative asset class. The RBI has consistently warned of systemic risks to the banking sector due to crypto adoption. Furthermore, digital assets are frequently used for illegal activities such as terror financing, ransomware, and money laundering, due to their
pseudonymous nature. There is also the fundamental issue of monetary sovereignty—if
private currencies gain mass acceptance, it could undermine the RBI’s authority to regulate currency supply and inflation.
India’s wait-and-watch approach stems from its recognition of cryptocurrency as a global challenge. Given the cross-border nature of crypto transactions, unilateral legislation could be ineffective. For instance, even if India were to impose a ban, users could still access
decentralised platforms or foreign exchanges via VPNs. Thus, India’s push during its G20 presidency for a globally coordinated regulatory approach makes practical sense. It also explains why the government has repeatedly delayed introducing the much-anticipated “Cryptocurrency Regulation Bill,” which has been in limbo since 2021.
Conclusion
India stands at a crossroads in its approach to cryptocurrency. The current strategy—taxing crypto without legal recognition—offers short-term revenue but long-term uncertainty.
Investors are left without rights or remedies, while developers operate in regulatory darkness.
While an outright ban could stifle innovation and push activity underground, unregulated growth could jeopardise financial stability. Therefore, a balanced regulatory framework—
focusing on consumer protection, AML safeguards, and technological innovation—is the need of the hour. Waiting indefinitely, especially when other nations move ahead with clarity, may cost India both economically and strategically in the global digital economy.
FAQs
Q1. Is cryptocurrency legal in India?
Cryptocurrencies are not illegal in India, but they are not officially recognized either. There is no specific law regulating them.
Q2. Can I be taxed on crypto gains?
Yes, under the Finance Act, 2022, a 30% tax is levied on income from VDAs, along with a 1% TDS on transactions above ₹10,000.
Q3. Has the Supreme Court allowed crypto trading?
In 2020, the Supreme Court quashed the RBI’s ban on crypto banking, thereby allowing crypto-related activities in the absence of a formal ban.
Q4. What is the RBI’s view on crypto?
The RBI remains critical of private cryptocurrencies and continues to promote its Central Bank Digital Currency (CBDC) as a safer alternative.
Q5. Will India ban crypto in the future?
While possible, a complete ban seems unlikely without global consensus. The government is leaning toward regulation, but legislative clarity is still pending.
