Is Cryptocurrency Legal in India? Understanding Bitcoin, Taxation and Regulation

Binit Gupta –New Delhi  
Cryptocurrency continues to attract significant interest in India, with Bitcoin and other digital assets being actively bought, sold and held by investors. However, India does not recognise cryptocurrencies as legal tender. Instead, crypto assets are treated under the country’s taxation and anti-money-laundering framework as Virtual Digital Assets (VDAs).

Crypto Is Not Legal Tender

There is currently no general prohibition on holding or transferring cryptocurrencies in India. However, Bitcoin is not issued or backed by the Reserve Bank of India (RBI) and does not have the status of official currency or legal tender. Therefore, its private use does not give it the same status as the Indian rupee.

The RBI has repeatedly highlighted the risks associated with private cryptocurrencies, including volatility, consumer protection and financial risks.

30% Tax on Crypto Income

India has introduced a specific taxation regime for VDAs. Under Section 115BBH of the Income-tax Act, income arising from the transfer of a VDA is taxed at 30%, plus applicable surcharge and cess. Only the cost of acquisition can generally be deducted; other expenses and losses cannot be set off against such income. Additionally, 1% TDS applies under Section 194S on consideration paid to a resident for the transfer of a VDA, subject to prescribed thresholds.

FIU-IND and AML Compliance

Crypto businesses operating within the activities covered by India’s anti-money-laundering framework are subject to reporting requirements. The Financial Intelligence Unit–India (FIU-IND) requires relevant VDA service providers to register as reporting entities and comply with Know Your Customer (KYC) and anti-money-laundering obligations. These activities include crypto-to-fiat exchange, crypto-to-crypto exchange, transfers and custody-related services.

What Does This Mean for Investors?

India’s approach is therefore neither a blanket ban nor recognition of Bitcoin as currency. Cryptocurrency can be dealt with within the existing legal and tax framework, but investors remain responsible for reporting taxable income and complying with applicable rules.

With high price volatility and evolving regulations, investors should maintain detailed transaction records and seek professional tax or legal advice before undertaking significant crypto activity.