The Evolving Legal Landscape of Cryptocurrency in India: A 2025 Perspective

The regulatory trajectory of cryptocurrency in India has witnessed a paradigm shift—from an initial attempt at a blanket ban to a nuanced framework of strict taxation and anti-money laundering compliance. As of 2025, India has adopted a "middle path," influenced largely by the G20 Roadmap on Crypto Assets. While private cryptocurrencies are not recognized as legal tender, they function as a regulated asset class under the ambit of Indian law.

1. Legal Classification: Virtual Digital Assets (VDAs)

The Finance Act, 2022, introduced the definition of "Virtual Digital Assets" (VDAs) under Section 2(47A) of the Income Tax Act, 1961. This definition encompasses cryptocurrencies, Non-Fungible Tokens (NFTs), and other cryptographic assets.

It is imperative to note that the Reserve Bank of India (RBI) does not recognize private cryptocurrencies (such as Bitcoin or Ethereum) as currency. They cannot be used for the settlement of debts or purchase of goods within the Indian economy.

2. The Taxation Framework (2025 Updates)

India maintains one of the world's most stringent taxation regimes for digital assets, aimed at tracking transactions and discouraging speculative trading.

Flat Tax on Gains

Under Section 115BBH, any income from the transfer of VDAs is taxed at a flat rate of 30% (plus 4% cess). No deductions are allowed for expenses other than the cost of acquisition. Crucially, losses from one VDA cannot be set off against gains from another.

Tax Deducted at Source (TDS)

Section 194S mandates a 1% TDS on VDA transfers exceeding ₹10,000 (or ₹50,000 for specified persons) in a financial year. This provision creates a transaction trail for the Income Tax Department.

Budget 2025: The Tightening Noose

The Union Budget 2025 has introduced stricter norms for non-compliance. Unreported VDA holdings discovered during search and seizure operations are now classified as "Undisclosed Income," attracting significantly higher penalty rates and potential legal prosecution.

3. Regulatory Compliance: FIU-IND and PMLA

In March 2023, the Ministry of Finance brought VDA service providers (exchanges, wallet providers) under the ambit of the Prevention of Money Laundering Act (PMLA), 2002.

Consequently, all crypto exchanges operating in India—whether domestic or offshore—must register with the Financial Intelligence Unit - India (FIU-IND). Compliant entities are required to:

• Conduct rigorous Know Your Customer (KYC) verification.
• Report suspicious transactions (STRs) to the authorities.
• Maintain transaction records for a minimum of five years.

This mandate led to the temporary blocking of several major offshore exchanges in 2024 until they demonstrated compliance with Indian laws.

4. The Reserve Bank of India (RBI) and CBDCs

"Private cryptocurrencies pose macro-economic and financial stability risks... The Digital Rupee is the answer to the future of digital payments."

While maintaining a cautious stance on private crypto, the RBI has aggressively expanded the pilot of its Central Bank Digital Currency (CBDC), the e-Rupee (e₹). Unlike crypto, the e-Rupee is a sovereign currency issued by the central bank, offering the safety of cash in a digital format. As of 2025, interoperability with UPI (Unified Payments Interface) has been enabled to boost adoption.

5. Conclusion

The legal landscape in India has matured from ambiguity to structured regulation. For investors and businesses, the message is clear: Compliance is non-negotiable. While the government permits investment in digital assets, it demands absolute transparency in reporting and strict adherence to tax laws. Entities ignoring these mandates risk severe financial and legal repercussions.