Cryptocurrency Regulation: Ongoing discussions and debates about regulating cryptocurrencies in India
As the world steadily embraces the rise of digital currencies and blockchain innovations, India remains entangled in a policy vacuum. The past few years have witnessed an explosion in cryptocurrency adoption, both globally and within India. Yet, the regulatory response from the Indian government has been piecemeal, hesitant, and at times contradictory. With the Supreme Court recently expressing concern that crypto trading is operating “more or less like hawala business,” the urgency to enact comprehensive cryptocurrency regulation is no longer a matter of economic foresight—it is a necessity.
India’s regulatory stance on crypto has swung dramatically. From the Reserve Bank of India’s 2018 circular virtually banning crypto transactions, to the 2020 Supreme Court verdict overturning the same, and to the imposition of a 30% capital gains tax on
digital assets in 2022—the approach has lacked clarity and consistency.
While these measures recognize the existence of cryptocurrencies, they do little to protect investors, guide innovation, or ensure systemic integrity.
The current regulatory architecture is fragmented. The Ministry of Finance oversees taxation and compliance; the RBI voices concerns about financial instability and monetary sovereignty; SEBI intervenes where digital assets resemble securities; and the Financial Intelligence Unit (FIU) now mandates KYC norms. Yet, there exists no unified legislative framework to regulate cryptocurrencies holistically. The absence of such a framework has allowed confusion and non-compliance to proliferate.
Recently, there has been a noticeable uptick in institutional interest and retail engagement in the crypto sector. Major exchanges like Binance and Coinbase have registered with India’s FIU, signaling that India’s market is too significant to ignore. Yet, investor confidence is eroded by the looming fear of criminalization, abrupt policy shifts, and lack of legal safeguards. Exchanges operating in India often function in a legal grey zone, while thousands of retail investors engage in crypto trading with little understanding of legal repercussions or risks.
Ironically, India also leads the world in blockchain adoption, with the National Payments Corporation of India piloting successful blockchain initiatives and the RBI’s digital rupee (CBDC) gaining traction. The contradiction is stark: the government celebrates blockchain’s promise but treats cryptocurrency with suspicion.
One of the major flashpoints has been taxation. The flat 30% tax on crypto profits, along with a 1% TDS on transactions, has pushed much of India’s trading volume offshore. Instead of curbing illicit flows, these punitive measures have incentivized opacity. Exchanges have repeatedly called for a more rational tax regime—such as a 0.1% TDS—which would encourage transparency, increase compliance, and boost domestic innovation.
Globally, the tide is turning toward pragmatic regulation. Countries like the UAE, Singapore, and even Pakistan are framing laws that protect investors while fostering innovation. India cannot afford to remain on the sidelines while its talent and capital migrate elsewhere. A draft bill—long promised—is reportedly in the works, but delays have only widened the regulatory gap.
What India needs is not a ban, but balance. A forward-looking regulatory framework must:
1. Define virtual digital assets clearly.
2. Set up a licensing and monitoring mechanism for exchanges.
3. Institute investor protection and grievance redressal mechanisms.
4. Promote financial literacy around digital assets.
5. Align with global norms such as FATF recommendations.
Cryptocurrency is no longer a fringe experiment—it is a legitimate asset class and technological paradigm that requires thoughtful governance. Regulation should not stifle innovation, nor should it permit lawlessness. A nuanced, adaptive legal framework will serve not only the interests of investors and entrepreneurs, but also national security and financial stability.
India stands at the crossroads. The path it chooses now will define its place in the future digital economy. A regulated, innovation-friendly crypto ecosystem is not just desirable—it is imperative.
