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Cryptocurrency regulations in India are defined under the Income Tax Act, 1961, specifically Section 2(47A) which classifies digital tokens as Virtual Digital Assets (VDAs). This definition excludes fiat money but brings every crypto transaction under the tax net.
The Supreme Court’s 2020 decision overturned the RBI’s blanket ban, giving the market legal footing. Since then, the government’s strategy has been regulation through taxation rather than prohibition.
Multiple agencies share oversight:
Attempting to sidestep the tax or AML rules can trigger penalties that run into lakhs of rupees and even criminal prosecution. In practice, users who stick to FIU‑IND‑registered platforms report no interference from regulators.
Compliance offers two tangible benefits:
In short, playing by the rules is faster, cheaper, and protects your assets.
Not all exchanges are created equal. The government has taken action against 25 platforms for neglecting AML duties, while over 50 have earned FIU‑IND registration.
Feature | Registered (e.g., WazirX, Binance India) | Non‑Registered (e.g., unverified sites) |
---|---|---|
KYC Process | Mandatory, government‑verified ID | Often optional or superficial |
Tax Reporting | Automated 26AS statements | None provided |
AML Monitoring | Real‑time transaction screening | Limited or absent |
Regulatory Risk | Low - compliant with FIU‑IND | High - frequent bans or freezes |
Customer Support | Dedicated compliance helpdesk | Unreliable or no support |
For most traders, the safe bet is a platform that proudly displays its FIU‑IND registration number. Binance relaunched in August 2024 after meeting those standards, and local players like WazirX and CoinDCX have been compliant from day one.
India’s tax code requires you to retain every crypto‑related document for six years. A practical workflow looks like this:
If you trade frequently, consider a crypto‑specific accounting tool that can generate the required Schedule‑C‑like summary for you. Many compliant exchanges also offer an “Export Tax Report” button that pulls the data in the exact format the Income Tax Department expects.
The FIU‑IND mandates four core controls for any virtual asset service provider (VASP):
As a user, you can meet these obligations by:
These steps reduce the chance that your account is tagged for additional scrutiny.
Here’s a concise, action‑oriented checklist you can follow from day one:
Following this routine typically takes two to three weeks for an individual trader and up to three months for a small business.
Pitfall 1: Using an unregistered exchange. You risk a sudden freeze and a hefty fine. Fix: Move funds to a registered platform and keep a migration receipt.
Pitfall 2: Ignoring the 1% TDS. The tax department automatically deducts it, but you still need to report the gross amount. Fix: Add the withheld amount back into your taxable base when filing.
Pitfall 3: Mixing personal and business wallets. This makes cost‑basis calculations messy. Fix: Separate wallets - one for personal trades, another for business‑related transactions.
Pitfall 4: Forgetting record retention. After six years, the tax authorities can still request past data. Fix: Automate backups to a cloud service with versioning.
Holding crypto alone isn’t a taxable event under Indian law. Tax applies only when you transfer, sell, or exchange the asset for another VDA or fiat.
The exchange can be barred from operating in India, and users may lose access to their funds until they move them to a compliant platform. Additionally, any unreported trades on that exchange could trigger tax penalties.
Yes, as of 2025 India’s flat rate is among the steepest globally, only matched by a few jurisdictions that impose similar or higher rates on digital assets.
You can, but you must first move the assets onto a FIU‑IND‑registered exchange before withdrawing to the hardware wallet. The exchange will log the transfer, satisfying AML requirements.
The law requires an annual filing, but paying estimated taxes quarterly helps avoid interest charges, especially with the 30% flat rate.