How to crypto 101: India

India’s relationship with cryptos has taken many turns over the past decade. From early bans to a more cautious and structured legal approach, the country now sits at a crossroads. Millions of people in India hold or trade digital assets, but the laws that govern them are still evolving. With regulators paying close attention and policies slowly taking shape, understanding crypto regulations India is now more important than ever - for both users and businesses operating in this fast-moving space.

Understanding India’s position on virtual digital assets

India has had a complicated relationship with digital currencies. At first, the government and financial institutions were skeptical. Many people in power did not understand how crypto worked or why it mattered. In 2018, the Reserve Bank of India (RBI) issued a circular that effectively banned banks from dealing with crypto businesses. This created confusion and fear in the market. But the ban didn’t last forever. In 2020, the Supreme Court of India overturned the RBI circular, saying the move was unconstitutional. That ruling became a turning point. It showed that courts were open to supporting innovation in the crypto space, even if the regulators were not yet on board. The case also sparked a national conversation about the future of crypto regulations India, pushing lawmakers to reconsider their earlier stance.

Since then, the government has taken a more measured approach. It hasn’t fully embraced crypto, but it also hasn’t banned it outright. Instead, officials have chosen to study the sector and explore different forms of regulation. This includes looking at how to define Virtual Digital Assets (VDA) and which activities should be regulated. A VDA in India now covers things like cryptocurrencies, utility tokens, and Non-Fungible Tokens (NFTs). These assets can store value, serve as payment tools, or give users rights in a digital platform that offers blockchain-based services. The fact that so many types of assets fall under one label makes the topic even harder to regulate, which adds to the complexity of shaping clear crypto regulations India.

The government has also paid attention to how people are using VDAs. In India, these assets are becoming popular not just for investment but also for innovation. They are used in gaming, finance, and digital art, often through specialized coins or products that power these ecosystems. Some projects even tokenize real-world goods like real estate. This shows that VDAs are not just digital money - they are part of a much bigger trend in technology. Still, crypto regulations India are cautious. They worry about fraud, misuse, and how to protect users. That’s why crypto regulations India are becoming more detailed, step by step.

One big reason for this caution is the rise of young users in India. With more than a billion smartphone users expected by 2026, and the lowest data costs in the world, India is quickly becoming a global tech hub. This opens the door for rapid adoption of digital tools, including crypto. But it also creates risks if rules aren’t clear. People need to know what is allowed and what isn’t. Right now, India cryptocurrency regulation is still taking shape. Businesses and users are operating in a space that has laws, but also many grey areas, having little certainty about long-term rules.

There is also the issue of trust. Many users want to know that their money and data are safe. They want fair treatment, clear taxes, and protection from scams. This is where crypto investor protection becomes vital. While India has made some progress, like including VDAs under the Prevention of Money Laundering Act (PMLA), there are still holes in the system. Some types of crypto services - especially decentralized ones or those dealing in futures - remain outside the scope of current rules. This makes it hard to create a level playing field or offer users consistent regulatory options.

Finally, India looks at what other countries are doing. The Financial Action Task Force (FATF) has published global standards for crypto. India tries to match these rules, but it doesn’t always meet them. For example, crypto trading platforms India are regulated only if they offer certain services. Those working without custody - like some decentralized exchanges - are often left out. To close these gaps, India may need new laws or better guidelines. The conversation is still ongoing, and the government continues to consult experts, study reports, and watch trends. The road ahead for crypto regulations India is still being built, one rule at a time.

Legal turning points in India’s crypto journey

India’s legal approach to digital assets has moved through sharp turns. The first warning came in 2013 when the Reserve Bank of India (RBI) raised concerns about cryptocurrencies like Bitcoin. At that time, crypto was new, and its risks were unknown. RBI saw it as a threat to the financial system. Officials worried that crypto could be used for illegal actions like money laundering or terrorist financing. The ease of moving funds across borders without oversight added to their concern. They released public notices telling people to stay away from crypto investments, marking an early chapter in the story of crypto regulations India.

Still, crypto exchanges started to grow. From 2013 to 2017, they worked in a legal grey zone. No law banned their work, but they had no support either. It was hard to tell if crypto trading was truly allowed. This unclear space created fear and made it difficult for businesses and investors. As more users joined, crypto regulations India became a hot topic.

In 2018, RBI took a strong step. It told banks to stop working with crypto companies. That move hit the heart of India’s crypto scene. Without banking, exchanges could not help users with deposits or withdrawals. This caused many exchanges to close. The RBI cryptocurrency stance was now seen as overly harsh, and the crypto community pushed back. They believed innovation was being blocked without solid proof of harm.

In 2020, India’s Supreme Court stepped in. In a major ruling, it reversed the RBI ban. The Court said the action was unfair and broke the right to trade freely. It asked RBI to consider lighter rules next time. This was a key moment for cryptocurrency regulations India. It brought crypto businesses back into the open.

Later, in 2021, the government drafted a bill. It wanted to ban private cryptocurrencies while launching a digital rupee CBDC. But the bill never became law. So, crypto laws in India still remain uncertain. The legal base continues to shift, but the demand for clarity grows.

How India is taxing digital assets

In 2022, India made a bold move. For the first time, the government added crypto regulations India to its official tax system. In the annual budget, it introduced a flat 30% tax on any income earned from selling or transferring Virtual Digital Assets (VDA). This was a strong sign. It showed the state was no longer ignoring crypto - it wanted to tax it.

Alongside this 30% tax, India also added a 1% Tax Deducted at Source (TDS). That means every crypto transaction, even small ones, now gets a part taken out and sent to the government. These steps were added on top of regular income tax, making the total tax load very high for many users.

People in the industry saw this as a mixed message. On one hand, the taxes meant that VDAs were now partly recognized. It was a hint that crypto was here to stay. On the other hand, the rates were so steep that many traders began to leave Indian platforms. Without full clarity from the Income Tax Act crypto rules, users still don’t know how to handle set-offs or payments in crypto. So, while crypto taxation India has started, much more needs to be done to make the rules fair and clear.

KYC and AML expectations for crypto platforms in India

As crypto grows in India, so does the need to keep it safe. One of the most important areas in crypto regulations India today is compliance. In 2023, India brought Virtual Asset Service Providers (VASPs) under the Prevention of Money Laundering Act (PMLA). This was a turning point. It meant crypto companies now had to follow many of the same rules as banks and other financial firms. These rules are not just suggestions. They are strict legal duties backed by the power of the law.

VASPs must now verify the identity of each person who uses their service. They must check official documents, make sure those users are who they say they are, and understand if they are acting on someone else’s behalf. This is part of what’s called Know Your Customer (KYC). It helps stop illegal activity. These checks are required both when a new account is created and during any transaction above a certain value or across borders. VASPs must also keep detailed records. That includes wallet addresses, cryptographic keys, IP data, and transaction IDs, ensuring a higher level of security. If the Financial Intelligence Unit (FIU-IND) asks for this data, VASPs must be ready to provide it.

On top of this, VASPs are required to register with the FIU and send in digital copies of KYC records within 10 days of a user’s first transaction. If they notice something strange - like complex transfers or funds that don’t match normal patterns - they must alert the FIU. They also have to create internal systems to manage these rules, ensuring that sensitive data is kept secure and accessible when needed. The top people in the company must approve and oversee these steps. This adds a strong layer of crypto investor protection to the ecosystem.

India has also adopted the Travel Rule, which says that both the sender and receiver’s details must be shared and stored during any digital asset transfer. This allows India meet FATF global standards and adds transparency. These updates show that crypto regulations India are no longer in early stages - they are becoming detailed, structured, and globally aligned. As the market matures, crypto regulations India will likely expand to cover even more players and use cases.