Crypto in India

India's cryptocurrency regulatory framework remains fragmented, with no comprehensive legislation. The Reserve Bank of India (RBI) imposed a banking ban in April 2018 via circular DBR.No.BP.BC.104/08.13.102/2017-18, but the Supreme Court struck it down in March 2020 in Internet and Mobile Association of India v. RBI, citing proportionality. Since then, crypto trading is legal but not legal tender. The Ministry of Finance introduced a 30% tax on virtual digital assets (VDAs) in the Finance Act 2022, effective April 1, 2022, and a 1% tax deducted at source (TDS) on transfers above INR 10,000 (INR 50,000 for specified persons) from July 1, 2022. The RBI has repeatedly cautioned against private cryptocurrencies, advocating for a central bank digital currency (CBDC). In 2023, the government brought VDAs under the Prevention of Money Laundering Act (PMLA), requiring exchanges to report suspicious transactions. However, no specific law defines securities or commodities status for crypto, leaving regulatory gaps.

India taxes cryptocurrency gains at a flat 30% under Section 115BBH of the Income Tax Act, with no deductions except cost of acquisition. Losses from VDA transfers cannot be offset against other income or carried forward. The 1% TDS under Section 194S applies to all transfers, including exchanges, with thresholds of INR 10,000 per transaction or INR 50,000 for specified persons annually. Gifts of VDAs are taxed in the recipient's hands if exceeding INR 50,000. Reporting is mandatory in Schedule VDA of the income tax return. Non-compliance triggers penalties under Section 271DA (up to INR 10,000 per default) and potential prosecution. Despite these measures, compliance remains low; only 10-15% of crypto users report gains, per industry estimates. The tax regime has driven some trading to offshore platforms, reducing domestic exchange volumes by over 80% since 2022.

India leads the world in grassroots crypto adoption, with over 100 million users, according to Chainalysis 2024 Global Crypto Adoption Index. Despite a 30% tax and 1% TDS, retail participation surged, driven by remittances, inflation hedging, and youth interest. Peer-to-peer (P2P) trading volumes on platforms like Binance and WazirX grew 300% year-on-year in 2023, reaching $5 billion monthly. Institutional adoption is nascent; only a few venture funds and family offices allocate to crypto. Use cases include cross-border payments, where crypto reduces remittance costs from 6% to under 2%, and decentralized finance (DeFi) for lending. However, the RBI's Digital Rupee pilot, launched in December 2022, has seen limited retail uptake, with only 5 million users as of 2024. Crypto adoption is concentrated in metros and tier-2 cities, with ages 18-35 comprising 70% of users.