Crypto rules in India: FIU registration, 30% tax and 1% TDS

Yes, holding and trading crypto is legal, but it sits in a grey zone. No law says crypto is money, and no law bans it. In 2020 the Supreme Court set aside an RBI circular that had stopped banks from serving crypto businesses, and since then exchanges have operated openly. Parliament has not passed a full crypto law, and a discussion paper promised by the government has been slow to appear.

What exists is a patchwork. Tax law defines crypto as a virtual digital asset (VDA) and taxes it. Anti-money-laundering law treats businesses that trade or hold VDAs for others as reporting entities. Consumer, advertising and securities laws apply in some cases. A live case is WazirX, an Indian exchange that relaunched after an 18-month pause that followed a 2024 cyberattack, and which now says it is focused on recovery for creditors.

In March 2023 the finance ministry brought VDA service providers under the Prevention of Money Laundering Act (PMLA), 2002. This covers exchanges, custodians, and firms that transfer or manage VDAs, and those that take part in related financial services such as offering a token. Each such business has to register with the Financial Intelligence Unit of India (FIU-IND), appoint a compliance officer, verify customers (KYC), keep records and report suspicious transactions.

FIU-IND has taken enforcement action against platforms, including offshore ones, that served Indian users without registering. Registration with FIU-IND means the business meets anti-money-laundering duties. It is not an approval of the business model or a guarantee of safety, and it does not make the exchange a regulated securities market.

• Who must register: exchanges, custodians and other VDA service providers named in the March 2023 notification.
• What they must do: KYC, record keeping, suspicious transaction reports and a compliance officer.
• What registration does not mean: no promise of investor protection or deposit safety.

Since the Finance Act, 2022, income from transferring a VDA is taxed at a flat 30%, plus surcharge and cess. No deduction is allowed except the cost of buying the asset, and expenses such as fees or mining costs cannot be claimed. A loss on one VDA cannot be set off against a gain on another, and it cannot be carried forward. These provisions were earlier numbered section 115BBH of the Income-tax Act, 1961, and have been renumbered under the Income-tax Act, 2025, which applies from 1 April 2026.

Gifts of VDAs can also be taxable in the hands of the receiver above a threshold. Mining, staking rewards and airdrops raise separate questions, so a tax adviser should be consulted.

Tax deducted at source, or TDS, is a small amount held back when a payment is made and deposited with the tax department. For VDA transfers the rate is 1% of the consideration, under the provision earlier numbered section 194S. The buyer or the exchange deducts it, depending on how the trade happens. Because there is no deduction of costs for the 30% tax, TDS applies to the whole value, not only the profit.

The TDS is not an extra tax. It is credited against the investor's final tax bill. It does affect trading behaviour, because a deduction on every trade ties up money, which is one reason some Indian volume moved to offshore platforms.

The RBI has repeatedly said it is cautious about private crypto, citing risks to financial stability and capital controls, while it works on its own digital currency, the e-rupee. Banks may serve exchanges, but each applies its own checks. SEBI does not regulate crypto trading, though it covers tokens that are shown to be securities and public offers of investment schemes.

Whether a stablecoin, a token or a coin falls under securities law is a question the courts and regulators have not settled. Reports on enforcement agencies show that the Enforcement Directorate has searched exchanges over suspected rule breaches, which is a separate matter from registration.

A startup that builds on crypto faces tax, anti-money-laundering, foreign exchange and consumer risks together. It must decide early whether it is a VDA service provider, keep records of every customer, handle cross-border flows within FEMA, and plan for sudden changes in tax or policy.

Investors also ask hard questions about reserves, custody, hacks and whether customer assets are kept apart from company funds. A hack, as in the 2024 WazirX case, can freeze a business for months.

A share is a regulated security, issued by a company that follows company law and SEBI rules. A bank deposit is a liability of a bank that the RBI supervises, and deposits up to a limit are insured. Crypto has neither feature. A coin is usually not issued by any company in India, and nobody is obliged to redeem it at a set price.

This is why regulators keep warning that crypto can lose value quickly. It is also why an exchange failing or being hacked leaves customers with the same position as any unsecured creditor, and recovery may take years.

A few checks are practical. See whether the exchange is registered with FIU-IND, since offshore platforms that are not registered can be blocked. Read how customer assets are held and whether they are kept apart from the company. Look at the fee schedule, including the 1% TDS treatment. Keep records of every buy and sell with dates and prices, because the 30% tax rule depends on the purchase cost.

A user should also keep personal keys and logins secure. Tax and rules for crypto are among the fastest-changing parts of Indian law, so a chartered accountant is the right place to confirm the current position.

Open questions include a dedicated law, a regulator of choice, treatment of stablecoins, the status of tokens that behave like securities, and whether tax rates will ease. Headlines about a coming crypto bill have appeared repeatedly without a bill being passed, so a headline is not a rule change until it is in a notified law.

This page is general information. Crypto taxes and rules change, so check with a chartered accountant or lawyer before acting.