Quick Answer
Cryptocurrency in India exists in a legal grey area.
- No law explicitly bans crypto; a 2020 Supreme Court ruling overturned a banking ban.
- However, all income from crypto is taxed at a flat 30% rate.
Legal Status of Crypto in India
Cryptocurrency in India operates in a legal grey area, as the government has neither explicitly banned it nor provided clear guidelines on its legality. This ambiguity stems from a history of regulatory uncertainty, including a central bank circular restricting crypto services that was later struck down by the Supreme Court, leaving no comprehensive legislation in place. While regulatory bodies like the Reserve Bank of India and the Ministry of Finance are involved in policy discussions, the primary existing regulation is a strict tax regime on all virtual digital asset transactions. A proposed bill to ban private cryptocurrencies has been considered but not yet introduced, contributing to the ongoing uncertainty for investors and businesses.
Current Regulations
India currently lacks a comprehensive regulatory framework for cryptocurrency, but it has established a strict tax regime. All income from "virtual digital assets" is subject to a flat 30% tax, with an additional 1% tax deducted at source on transfers. While a 2020 Supreme Court ruling prevents an outright banking ban, the government has clarified that cryptocurrencies are not legal tender and has cautioned citizens about the risks involved.
Regulatory Authorities
Several regulatory bodies are involved in shaping the policy and oversight of cryptocurrencies in India.
- Reserve Bank of India (RBI): The RBI has consistently warned about the risks of cryptocurrencies, viewing them as a potential macroeconomic threat. It is also planning to introduce its own state-owned digital currency.
- Ministry of Finance: This ministry is responsible for the overall policy framework for crypto assets and introduced the current 30% tax on crypto income. It also prepared a bill to ban private cryptocurrencies, though this has not yet been introduced in Parliament.
- Securities and Exchange Board of India (SEBI): SEBI has suggested a different approach from the RBI, proposing that multiple regulators should supervise crypto trading. This indicates an openness toward permitting virtual assets within a regulated system.
Historical Context
India's crypto regulation journey began with central bank warnings in 2013. A major policy shift occurred in 2018 when the Reserve Bank of India (RBI) banned banks from servicing crypto firms, disrupting the market. This ban was overturned by the Supreme Court in March 2020, allowing the industry to revive. In 2021, the government considered a bill to ban private cryptocurrencies, creating significant uncertainty. The most recent shift came in 2022 with the implementation of a steep 30% tax on all crypto income. This moved the focus from a potential outright prohibition to strict taxation, impacting trader profitability while leaving crypto's legal status ambiguous.
Compliance Requirements for Businesses in India
Businesses in India, particularly financial institutions, must adhere to a strict set of government-mandated compliance rules. Key requirements outlined in the Reserve Bank of India's KYC/AML standards and subsequent KYC directions include:
- Anti-Money Laundering (AML) Checks: Institutions must conduct ongoing Customer Due Diligence (CDD), which involves monitoring transactions, periodically reviewing customer risk categories (at least every six months), and performing enhanced checks for high-risk clients. They are required to report large cash transactions (over ₹10 lakh) and any suspicious activities to the Financial Intelligence Unit-India (FIU-IND). Screening customers against lists of individuals linked to terrorism is also mandatory.
- Know Your Customer (KYC) Requirements: A board-approved KYC policy is essential for verifying customer identity and address at the start of a relationship. This data must be periodically updated—typically every two years for high-risk customers and five years for low-risk ones. Recent rules allow a one-year grace period for low-risk individuals whose KYC is due and permit the use of Business Correspondents to collect self-declarations and documents.
- Record-Keeping and Reporting: All transaction records and customer identification data must be preserved for at least ten years from the date the business relationship ends. Financial institutions must also appoint a senior-level Principal Officer to oversee all compliance and reporting duties.
- Mandatory Customer Communication: For KYC updation, institutions must proactively communicate with customers. This includes sending at least three advance notifications and three post-due reminders. In each phase, at least one communication must be a physical letter. All such communications must be logged in the system to maintain a clear audit trail.
Why this matters for Cross-Border Payments
These stringent regulations create significant friction for cross-border payments, as the rigorous KYC and AML checks can introduce delays and increase operational costs for businesses processing transactions into and out of India. For companies leveraging digital assets, the ambiguous legal status of cryptocurrency, coupled with a steep 30% tax, presents substantial financial and compliance hurdles. This complex regulatory landscape can deter international payment providers by adding layers of operational complexity and reducing the efficiency of financial flows.
How Lightspark Enables Compliant Crypto-Native Payments
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For businesses facing stringent regulations, Lightspark provides a compliant-ready infrastructure. It facilitates adherence to KYC/AML standards through features like audit-ready reporting, flexible key management, and built-in tools that support travel rule and OFAC screening. This empowers regulated institutions to leverage instant payments while managing their own compliance obligations, easing the operational burden of navigating complex financial landscapes like India's.
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Notice: This article is provided for informational purposes only and does not constitute legal advice.
FAQs
Is cryptocurrency mining legal in India?
Currently, there are no specific laws in India that explicitly prohibit cryptocurrency mining, placing it in the same legal grey area as trading. However, any income generated from mining activities is subject to the 30% tax on virtual digital assets.
Can I use crypto for daily purchases in India?
While not illegal to hold, cryptocurrencies are not recognized as legal tender, meaning businesses are not required to accept them as a form of payment. Therefore, using crypto for everyday transactions remains impractical and is not a common practice in India.
What are the penalties for not paying taxes on crypto in India?
Failing to report crypto income and pay the required 30% tax can lead to significant penalties under India's Income Tax Act. These consequences can include substantial fines and, in severe cases of tax evasion, potential imprisonment.
Sources
- Appani, Akshay Kumar. "The government of India has not provided clear guidelines regarding the legality of crypto trading." FACTLY, 5 July 2024, factly.in/the-government-of-india-has-not-provided-clear-guidelines-regarding-the-legality-of-cryptocurrencies/.
- "India - Cryptocurrency Laws and Regulation." Freeman Law, 2022, freemanlaw.com/cryptocurrency/india/.
- Mittal, Rupesh. "Is Crypto Mining Legal In India?" Forbes Advisor India, 29 May 2024, www.forbes.com/advisor/in/investing/cryptocurrency/is-crypto-mining-legal-in-india/.
- Reserve Bank of India. "Master Circular – KYC Guidelines – Anti Money Laundering Standards - PMLA, 2002 - Obligations of NBFCs." Reserve Bank of India, 1 July 2011, www.rbi.org.in/commonperson/english/Scripts/Notification.aspx?Id=866.
- Reserve Bank of India. Reserve Bank of India (Know Your Customer (KYC)) (Amendment) Directions, 2025. 12 June 2025, www.pdicai.org/Docs/RBI-2025-26-51_1262025151347878.pdf.
