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By taxing profits and transactions in cryptocurrencies, and letting banks service crypto exchanges and traders, but not bringing the industry under a legislative framework, the Government has pushed exchanges to shift base out of India, and exposed nearly 120 million investors to frauds and financial risks in an unregulated marketplace.
In fact, it was the Supreme Court that gave the industry a fresh lease of life after it revoked a 2018 RBI decision that had effectively banned banks from offering services to crypto exchanges and traders. The RBI’s move had pushed many exchanges to shut shop or move overseas.
The Internet and Mobile Association of India (IAMAI) challenged the RBI decision and the Supreme Court eventually ruled in March 2020 that the ban was unconstitutional and “disproportionate.” It said the central bank could regulate, but not destroy an entire industry without proper evidence. This reopened the doors for crypto trading in India.
In just five years since March 2020, the number of investors has grown nearly 20 times, from 6 million to 119 million, with the overall market projected to cross $15 billion by 2035. In a way, the Supreme Court verdict was a turning point, transforming India from a country that prohibited digital assets into one that let them grow with policy uncertainty looming large.
The uncertainty came with a double whammy in Budget 2022 when Finance Minister Nirmala Sitharaman announced a flat 30% tax on all income from VDAs, including cryptocurrencies and non-fungible tokens. The heavy tax burden was seen by many as a way to discourage investing in cryptocurrencies.
The RBI and Ministry of Finance did not respond to a request for comment.
Alongside the income tax, the government also introduced a 1% Tax Deducted at Source (TDS) on every crypto transaction. The buyer must cut 1% of the transaction value and deposit it with the government, even if the trade is made at a loss.
This has proved to be “unsustainable” for the “fledgling and growing sector”, said Bharat Web3 Association, an industry body representing 47 crypto exchanges and crypto wallet companies. In August this year, it drafted a VDA Regulatory Authority Bill, which it suggests would be the starting point for policy certainty. Dilip Chenoy, Chairperson, Bharat Web3, told The Indian Express, “clear and consistent policies” were key for the sector to thrive.
In its representation to the Finance Ministry, the industry body said between April 2022 and July 2023, the daily volume of crypto exchanges crashed 97 per cent after the 1% TDS. Further, it said trading of VDAs worth Rs 35,000 crore (almost 90 per cent of total trade volumes) shifted to offshore platforms.
But the Government is not so keen on a separate legislation for VDAs. “We are not keen on regulating the sector by means of a legislative framework,” a senior official told The Indian Express. Regulations will signal legal legitimacy, attracting more funds and investors to cryptos, fuelling concerns over widespread systemic risks in the financial sector.
Last December, Minister of State for Finance Pankaj Chaudhary told Parliament that “any comprehensive regulatory framework on the subject can be effective only with significant international collaboration on evaluation of the risks and benefits and evaluation of common taxonomy and standards”. In 2021, the Government had prepared a draft law to regulate the sector but never went ahead with it.
But the Union Finance Ministry is understood to be working on a discussion paper on cryptocurrencies. The Union Home Ministry, too, is learnt to be working on a separate framework for law enforcement agencies, including tracing, handling and storage of crypto currencies.
“The absence of a clear framework creates more friction than freedom. In the absence of a unified framework, compliant platforms still face uncertainty in banking access and policy interpretation, while offshore entities continue to serve Indian users without similar accountability,” Abhay Agarwal, founder and CEO of crypto exchange GetBit, told this newspaper.
Investments worth nearly $280 million have been jeopardised across at least two major hacks impacting leading crypto exchanges in the last two years. The Government is yet to get a grasp over the looming risks; so far, it has put the burden of protection on investors. “It must be mentioned that the crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions,” the Finance Ministry said in October, while issuing non-compliance notices to 25 crypto exchanges.
This hasn’t, however, stopped the Government from penalising crypto exchanges for not adhering to anti money laundering laws. Between 2024 and 2025 so far, the Financial Intelligence Unit (FIU)-IND has imposed fines of over Rs 28 crore on three crypto exchanges — Binance (Rs 18.82 crore), ByBit (Rs 9.27 crore), and KuCoin (Rs 34.5 lakh). In the previous month, the Financial Intelligence Unit also issued non-compliance notices to 25 exchanges based in countries like the US, China, Cambodia and Singapore for violation of money laundering laws.
Manhar Garegrat, Country Head, Liminal Custody, a digital asset storage provider, said India’s regulations are “fragmented”. Arguing for a clear regulatory framework, he said, “Indefinite ambiguity can push innovation into regulatory grey zones, reduce investor confidence, and set Indian startups back by years.”
As per a report by crypto intelligence firm Chainalysis, India received an estimated $268.9 bn in crypto assets between 2022 and 2023, which spiked to $338 bn in the first half of 2025, the highest amount in the Asia Pacific region.
While an overarching law on cryptocurrencies is missing, the Government is repurposing a patchwork of already existing regulations to cover cryptocurrencies, staying consistent with its concerns about digital tokens. In 2023, it brought them under the Prevention of Money Laundering Act to increase transparency. Exchanges, wallet providers, and even decentralised finance platforms must now register with the FIU. They are required to conduct Know Your Customer verification for all users, maintain detailed transaction records and report any suspicious activity.
Major crypto exchanges like CoinDCX, WazirX, and Binance India have already registered under this framework. “Exchanges which are registered with the FIU-IND represent only a small portion of the overall crypto network,” another official said. “The reality is that there are many foreign based entities which do not adhere to our requirements. And for people who are looking at cryptocurrency as a potential tool for embezzlement, those foreign exchanges are lucrative platforms. It is very difficult for investigators to gain access to information there,” the official said.
