Legal Status of Cryptocurrencies in India: What You Can and Can’t Do in 2025

India doesn’t ban cryptocurrencies-but it doesn’t really welcome them either. If you’re holding Bitcoin, Ethereum, or any other digital asset in India, you’re operating in a legal gray zone that’s more like a minefield. You can buy, sell, and trade crypto legally. But the government treats it like a high-risk luxury, not a financial tool. And the cost of playing the game? It’s steep.

It’s Not Illegal, But It’s Not Legal Tender Either

You won’t go to jail for owning crypto in India. That’s the good news. Since the Supreme Court struck down the RBI’s 2018 banking ban in 2020, individuals and businesses have been free to trade digital assets. But here’s the catch: cryptocurrencies are not money. They’re called Virtual Digital Assets (VDAs) under Indian law. That label matters. It means you can’t use Bitcoin to pay your rent, buy groceries, or settle a debt unless the other person agrees. And even then, the law won’t protect you if things go wrong.

Only the Reserve Bank of India’s digital rupee-still in pilot mode-has the official status of legal tender. Everything else? It’s just a digital asset. No backing. No guarantee. No recourse if an exchange collapses or a transaction gets frozen.

Heavy Taxes, No Deductions, No Mercy

The Indian government doesn’t want to stop crypto. It wants to tax it. Hard.

If you make a profit from selling Bitcoin, Ethereum, or even an NFT, you pay 30% in income tax. No exceptions. No deductions for trading fees, gas costs, or losses. Even if you lost money on 10 trades and only made $1,000 on one, you still pay 30% on that $1,000. There’s no distinction between short-term and long-term gains like there is with stocks or real estate.

On top of that, there’s a 1% Tax Deducted at Source (TDS). Every time you transfer crypto-whether you’re selling, swapping, or sending to another wallet-your exchange or platform must withhold 1% of the transaction value and send it to the government. That’s not on profits. That’s on the total amount you trade. So if you swap $10,000 worth of Ethereum for Solana, $100 gets taken off the top before you even see the result.

Then, in July 2025, things got worse. Bybit, one of the biggest exchanges serving Indian users, started charging an 18% Goods and Services Tax (GST) on every crypto transaction: spot trades, derivatives, staking, even withdrawals. That’s not a government rule-it’s the exchange’s response to legal pressure. But it’s now the de facto norm. Combine the 30% income tax, 1% TDS, and 18% GST, and you’re looking at over 49% in taxes on a single trade. In the U.S., the top capital gains rate is 20%. In the UK, it’s 20%. In India? You’re paying nearly half your profit to the government before you even touch your money.

Compliance Is a Full-Time Job

If you run a crypto exchange, wallet service, or even a peer-to-peer platform in India, you’re not just a tech company. You’re a financial regulator’s nightmare-and their new best friend.

Since March 2023, every VDA service provider must register with the Financial Intelligence Unit-India (FIU-IND) under the Prevention of Money Laundering Act. That means full KYC: government ID, address proof, source of funds, biometrics. You must track every transaction, flag anything suspicious, and report it. Records must be kept for at least five years.

Smaller exchanges couldn’t handle the cost. Many shut down. Others stopped serving Indian users entirely. Even big international platforms like Binance and Kraken now restrict Indian accounts or force users into limited-functionality modes. The only ones thriving are the ones that spent millions on compliance tech-like CoinSwitch Kuber, WazirX, and ZebPay.

For individual traders, it’s not much easier. You need to track every single transaction: when you bought, how much you paid, when you sold, what you got. You need to calculate gains using the method the tax department accepts (usually FIFO-first in, first out). And you need to report it all in your annual tax return. One mistake, and you’re looking at penalties, interest, or worse.

SEBI Just Entered the Game

On April 1, 2025, the Securities and Exchange Board of India (SEBI) started watching crypto too. Not all crypto. Only tokens that act like securities. That means tokens sold as investments with the expectation of profit from others’ work-like many DeFi tokens, utility tokens tied to project success, or tokens sold in private sales before a launch.

If your token looks like a stock, SEBI will treat it like one. That means it must be registered, disclosed, and comply with securities laws. It’s a big shift. Before, crypto was just an asset. Now, some crypto is a security. That creates confusion. Is Solana a security? Is Polygon? No one knows for sure. The rules are vague. And that uncertainty scares off investors and startups alike.

Why Is India So Strict?

The Reserve Bank of India has never liked crypto. They call it a threat to monetary stability. They worry about money laundering, tax evasion, and capital flight. They’re not wrong-crypto can be used for those things. But they’re also ignoring the fact that India has over 107 million crypto users. That’s more than the population of Germany. These aren’t criminals. They’re students, freelancers, small business owners, and investors trying to hedge against inflation, save in dollars, or access global opportunities.

The government’s real motive? Revenue. Crypto trading generates billions in taxable activity. The 30% tax, the 1% TDS, the 18% GST-it all adds up. In 2024-25, India collected over ₹18,000 crore ($2.1 billion) in crypto-related taxes. That’s more than the entire annual budget of some Indian states.

The government doesn’t want to ban crypto. It wants to control it. Tax it. Monitor it. And make sure no one escapes.

What’s Next?

In June 2025, the government promised a discussion paper on a formal crypto framework. It hasn’t been released yet. But experts expect it to address three big questions:

• Will DeFi platforms be allowed to operate in India?
• How will staking rewards be taxed?
• Will crypto lending and borrowing be regulated like banking?

There’s also the digital rupee. The RBI is testing its own central bank digital currency. If people start using it, private crypto might become less attractive. The government doesn’t want competition.

Some think India will eventually pass a dedicated crypto law. Others believe it’ll keep patching old laws like the Income Tax Act and the Prevention of Money Laundering Act. Either way, the trend is clear: more rules, more taxes, more oversight.

What Should You Do?

If you’re holding crypto in India:

• Keep perfect records of every transaction-buy, sell, swap, stake, send.
• Use exchanges that comply with FIU-IND and TDS rules. Avoid unregulated platforms.
• Don’t assume your losses offset your gains. They don’t.
• Expect to pay more than 40% in taxes on profits.
• Don’t try to hide trades. The government can track blockchain activity.

If you’re thinking of starting a crypto business:

• Don’t skip compliance. The cost is high, but the penalty is worse.
• Build your tech around KYC, AML, and audit trails from day one.
• Consult a tax lawyer who understands VDAs-not just a regular accountant.

Is There Any Hope for Change?

Yes-but it won’t come from the government. It’ll come from the users.

The 107 million Indians using crypto aren’t going away. They’re adapting. More are using decentralized exchanges (DEXs) like Uniswap or PancakeSwap to avoid TDS. More are using peer-to-peer platforms like LocalBitcoins or Paxful. More are holding crypto on non-Indian wallets to avoid Indian tax tracking.

These are risky moves. The law doesn’t protect them. But they’re happening anyway.

The real question isn’t whether crypto is legal in India. It’s whether the government can keep taxing it into irrelevance. So far, it hasn’t. Demand is still growing. Innovation is still happening. And the world is watching.