India's regulatory stance on cryptocurrency has been one of the most closely watched in the world -- oscillating between outright ban signals, banking access restrictions, and eventually, a pragmatic tax-and-regulate approach. As of mid-2026, the landscape has stabilized considerably, though important open questions remain.

The Current Tax Framework for VDAs

The Finance Act 2022 introduced a dedicated tax framework for Virtual Digital Assets (VDAs), which includes cryptocurrencies and NFTs. Key provisions:

  • Flat 30% tax + cess on gains from transfer of VDAs under Section 115BBH of the Income Tax Act. This applies regardless of holding period -- there is no long-term/short-term distinction for crypto.
  • 1% TDS on VDA transfers above threshold amounts (10,000 per transaction, or 50,000 for specified persons) under Section 194S, applicable to buyers.
  • No set-off: Losses from one VDA cannot be set off against gains from another VDA or any other income source.
  • No deduction except the cost of acquisition -- mining costs, transaction fees, and platform charges are NOT deductible.

This is among the world's most punitive crypto tax frameworks. The combination of 30% flat rate, no loss set-off, and 1% TDS has driven significant trading volume to offshore exchanges and P2P platforms -- a regulatory arbitrage that Indian authorities are actively working to address.

PMLA and VASP Registration

In March 2023, the Government of India brought virtual asset service providers (VASPs) -- exchanges, custodians, and wallet providers -- under the Prevention of Money Laundering Act (PMLA). This requires VASPs operating in India to:

  • Register with the Financial Intelligence Unit (FIU-IND)
  • Implement KYC/AML programs equivalent to those for banks
  • File Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs)
  • Maintain records of all customer transactions for 5 years

Exchanges that have not completed FIU registration face blocking of their URLs in India -- several offshore exchanges were blocked in 2023-2024 for non-compliance. As of 2026, the major global exchanges operating in India (CoinDCX, WazirX's successor entities, Zebpay, BitBNS) have completed PMLA registration.

RBI's Position

The RBI's position has consistently been cautious. The RBI's annual reports through 2025 continue to recommend a ban on private cryptocurrencies, citing financial stability and monetary sovereignty concerns. However, RBI policy has not matched this rhetoric -- banks are now permitted to provide banking services to FIU-registered VASPs following the Supreme Court's 2020 judgment striking down the earlier banking ban.

The RBI is more constructive on Central Bank Digital Currency (CBDC): the e-Rupee pilot has expanded to cover wholesale and retail segments, with active pilots in several cities. The CBDC and private crypto are distinct -- the government's CBDC enthusiasm does not imply support for private crypto.

What Investors Should Know

  • All crypto gains (however small) must be declared in your ITR under Schedule VDA.
  • The 1% TDS, while creditable against your final tax liability, creates cash flow friction -- plan your liquidity accordingly.
  • Use only FIU-registered platforms to avoid the risk of your exchange being blocked mid-position.
  • Maintain transaction records from all exchanges -- required for accurate cost basis calculation and TDS reconciliation.

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