Is crypto regulated in India? A 2025 guide

Every time you hear about Bitcoin or Ether making headlines, the first question from an Indian investor is: Can I legally use crypto here? The short answer is yes, you can buy, sell and hold digital assets, but they sit in a legal grey zone where the government taxes every transaction and watches them closely. This guide breaks down what that means in plain English, walks you through the current tax rules, shows which agencies are involved, and gives you a clear checklist so you don’t get caught off‑guard.

Quick Take

• Cryptocurrencies are classified as “Virtual Digital Assets” (VDAs) under Indian law.
• All gains are taxed at a flat 30%plus a 1% TDS on each transaction.
• The Reserve Bank of India, FIU‑IND, CBDT and SEBI all have overlapping oversight.
• Crypto is not legal tender and cannot be used for payments.
• Stay compliant by keeping detailed records and filing ScheduleVI‑A in your income‑tax return.

Cryptocurrency regulation in India refers to the evolving legal framework that governs buying, selling, holding and taxing digital assets such as Bitcoin, Ether and NFTs as of 2025. It has moved from outright bans to a structured tax regime, but the rules remain strict and the environment is still called a "legal grey area" by experts.

How the law defines crypto

In the 2024‑25 financial year the government introduced a definition called Virtual Digital Assets (VDAs) any code, token or piece of information created through cryptography, including cryptocurrencies, NFTs and similar digital tokens, but excluding fiat currencies.. This definition lives in Section2(47A) of the Income Tax Act, 1961 the primary legislation that governs taxation in India., which was later updated by the Income Tax (No.2) Bill, 2025.

The act makes clear two things:

1. Holding or trading VDAs is legal; you just have to pay tax.
2. VDAs cannot be used as legal tender - you can’t pay your electricity bill with Bitcoin.

What the tax regime looks like

The tax framework is simple on paper but heavy in practice. All income from VDA transfers is slapped with a flat 30% tax rate. There are no deductions, no set‑offs against losses, and the tax is applied whether you made a profit, a loss, or broke even.

On top of that, every crypto transaction triggers a mandatory 1% Tax Deducted at Source (TDS). The TDS is collected by the exchange or broker and deposited with the tax department, similar to the way salary tax is deducted at source.

For example, if you sell 0.5BTC for ₹5million, the exchange will withhold ₹50,000 as TDS. When you file your return, you’ll still owe 30% of the ₹5million gain, but you can claim the ₹50,000 TDS as a pre‑payment.

Compliance steps:

• Maintain a spreadsheet with date, asset, amount, INR value, and TDS amount for each transaction.
• Report total VDA income in ScheduleVI‑A of your I‑TR.
• Attach Form26AS to show the TDS credits collected by exchanges.

Who watches the crypto market?

Regulation isn’t handled by a single agency. Instead, several bodies coordinate:

• Reserve Bank of India (RBI) the central bank that issues public cautions on crypto risk and is developing a sovereign digital rupee.
• Financial Intelligence Unit‑India (FIU‑IND) the agency that enforces anti‑money‑laundering standards on crypto exchanges.
• Central Board of Direct Taxes (CBDT) the tax authority that designs the VDA tax rules and monitors compliance.
• Securities and Exchange Board of India (SEBI) the securities regulator that is debating whether to grant a broader licensing framework for crypto trading platforms.

Each agency publishes its own guidance, and they often issue joint circulars. If you’re a trader, the most practical advice is to follow the RBI’s risk warnings, the FIU‑IND’s KYC/AML rules, and the CBDT’s tax filing requirements.

Key milestones - how we got here

Notice how the Supreme Court decision in 2020 was the turning point. Before that, banks refused to work with crypto firms, making it almost impossible to convert digital assets to rupees. After the judgment, exchanges resurfaced, but the tax and AML machinery followed closely.

Checklist for Indian crypto users

1. Verify that your exchange is registered with the FIU‑IND and follows RBI KYC norms.
2. Enable two‑factor authentication and keep backup of private keys offline.
3. Record every transaction - date, asset, amount, INR value, TDS deducted.
4. Report total VDA gains in ScheduleVI‑A when filing your I‑TR.
5. Keep Form26AS handy to prove TDS credits.
6. Stay updated on any new RBI circulars or SEBI proposals - they can change reporting requirements.

Missing any of these steps can trigger a notice from the tax department, which often results in penalties and interest on unpaid tax.

What the future might hold

India is still drafting a comprehensive crypto bill. The Ministry of Finance has hinted at a framework that could separate “utility tokens” from “security tokens” and possibly create a licensing regime for exchanges. Meanwhile, the RBI continues to develop its own Central Bank Digital Currency (CBDC) - the e‑Rupee - which could coexist with private VDAs but with stricter controls.

Internationally, India pushed for a unified G20 approach at the 2023 summit, supporting the Crypto‑Asset Reporting Framework (CARF). That means Indian authorities will likely tighten cross‑border reporting, making it harder to hide crypto income abroad.

Bottom line: expect more clarity, not less regulation. Keep your records tidy, use compliant platforms, and treat crypto earnings like any other taxable investment.

Frequently Asked Questions

Is it illegal to own Bitcoin in India?

No. Owning Bitcoin or any other VDA is legal, but you must pay tax on any gains and cannot use it as legal tender for everyday purchases.

Do I have to pay tax if I just hold crypto and don’t sell?

Tax is triggered only by a transfer that results in a gain or loss. Simply holding a VDA in a wallet does not create a taxable event, but you must still disclose any income earned from staking or interest.

What is the 1% TDS and who collects it?

Every crypto trade on a registered exchange has 1% of the transaction value withheld at source. The exchange deducts it and deposits it with the Income Tax Department, similar to salary tax.

Can I use crypto to pay for goods or services?

No. The RBI has made it clear that cryptocurrencies are not recognized as legal tender, so merchants cannot accept them as payment under Indian law.

What records should I keep for tax filing?

For each transaction record the date, asset type, quantity, INR value at the time of trade, and any TDS deducted. Keep these in a spreadsheet or accounting software and retain them for at least five years.