India's approach to regulating crypto assets has been a subject of much discussion and anticipation. While the nation has emerged as a significant player in the digital economy, the regulatory framework for cryptocurrencies remains a work in progress. Recent developments suggest that a comprehensive policy may be on the horizon, with expectations building for the release of a discussion paper on crypto asset norms in June 2025.
The need for clear regulations stems from the increasing popularity of crypto trading in India. While not legally defined as legal tender nor explicitly illegal, this "half-legal status" has created confusion among law enforcement and regulatory agencies, particularly concerning crypto-related crimes. The Supreme Court has voiced concerns, drawing parallels between unregulated Bitcoin trading and "a refined form of Hawala," highlighting the urgent need for a well-defined regulatory structure.
Several factors indicate that India is moving towards stricter oversight. The Financial Intelligence Unit of India (FIU-IND) has mandated that all crypto exchanges operating in the country update their users' Know Your Customer (KYC) details by June 30, 2025. This move is aimed at strengthening crypto compliance and ensuring adherence to tax regulations, particularly the 1% Tax Deducted at Source (TDS) rule applicable to crypto transactions. Exchanges are required to reverify user accounts, including PAN details, and failure to comply may lead to regulatory action.
Furthermore, the Income Tax Bill, 2025, introduces strict reporting requirements for crypto transactions, defining VDAs as cryptos, tokens, NFTs, and any other digital assets specified by the government. Entities handling crypto assets must furnish transaction details to tax authorities, with gains from trading, selling, or swapping crypto assets taxed at a flat rate of 30% plus a 4% surcharge. Mandatory reporting requirements will apply from the fiscal year 2025-2026, with a dedicated Schedule VDA in the Income Tax Return (ITR) to streamline crypto-related tax reporting.
The anticipated discussion paper on crypto asset norms is expected to provide a principles-based framework for regulating crypto assets. It could address key issues such as licensing regimes, regulations for virtual asset exchanges, and the creation of regulatory sandboxes to foster innovation while maintaining compliance standards. This structured approach aims to catalyze a national dialogue based on reasoned deliberation, moving away from reactive measures and inconsistent signals.
India's regulatory approach must also align with global standards. The Financial Stability Board (FSB) peer review in October 2025 will assess India's preparedness and alignment with international crypto-asset regulation standards. Demonstrating clear regulatory intent before this review is crucial. Furthermore, as a G20 member, India must cooperate in regulating the crypto-asset ecosystem, aligning its trajectory with the rapidly evolving global landscape.
While an outright ban on cryptos is considered counterproductive, the regulatory framework should mitigate risks such as money laundering, consumer risks, and threats to financial stability. The framework should also facilitate the use of blockchain technology and promote innovation in the digital asset space.
By addressing these key areas, India can create a comprehensive and effective regulatory framework for crypto assets, fostering innovation, protecting investors, and ensuring the integrity of the financial system. The expected discussion paper in June could be a pivotal step towards achieving this goal.
