Written by Ananya Bhardwaj
National Law Institute University, Bhopal
March 2026
INTRODUCTION
The topic of crypto-currency has been hotly contested and extensively discussed worldwide. It has also had a wide-ranging impact on the Indian subcontinent. Crypto-currency, a form of digital payment system enables users to send and receive money directly from their own devices without the involvement of a third party. The value of crypto-currency is determined by what people are willing to pay for it; having no set legal value of its own. Jurisdictions worldwide have varying opinions on the legality of crypto; with very few having permitted the trading of crypto-currencies.
India’s stance on cryptocurrency and bitcoin has evolved from caution to cynicism and eventually, conditional acceptance. The story of its evolution has ranged from its introduction, subsequent warnings about the risks, blanket prohibitions by RBI, taxation frameworks and finally proposal of Regulatory framework and bills that unfortunately remain undebated in the Parliament even today. This leaves one wondering: What are the current regulations governing crypto-currency in India? Why has India not passed any dedicated Crypto-currency law yet? How does the regulatory uncertainty affect crypto business and users in India?
Keywords: Crypto-Currency, Bitcoin, CBDC, Crypto-Regulation, Taxation Framework.
THE RISE AND STRUGGLES OF CRYPTO IN INDIA
After its initiation in 2012-2013, cryptocurrency, or more specifically bitcoin, gained heavy traction amongst the masses. The initial upliftment was fuelled by tech enthusiasts and investors seeking unconventional investment opportunities. Alongside the fire of cryptocurrency, there had been smoke of potential risks that caused apprehensions in the mind of the government, maybe rightfully so!
The RBI and the government have taken several actions to control the circulation of cryptocurrencies in the market while walking this route with extreme caution. Over a period of last 12 years, RBI has issued numerous notifications elaborating all possible drawbacks entailing cryptocurrencies like their volatility, lack of regulatory oversight and potential use in illicit activities including money laundering and terrorism funding.
RBI’s notification ‘Prohibition on dealing in Virtual Currencies(VCs)’, prohibiting banks and financial institution from offering all forms of services and transactions to cryptocurrency firms, was met with severe contempt and harsh criticism from crypto companies India wide. They later took the matter to Supreme Court on the grounds of arbitrary and unreasonable ban. In the judgement of Internet and Mobile Association of India vs. Reserve Bank of India, the Supreme Court set aside the order on the grounds of proportionality. The three-judge bench acknowledged that RBI’s authority to regulate finance sector extended to Virtual Currency as well. Though, the court believed the blanket prohibition to be a disproportionate and arbitrary measure.
In the year 2019, a Bill officially entitled, “Banning of Cryptocurency and Regulation of Official Digital Currency Bill, 2019”, was listed for introduction in the Parliament. It was pushed back due to a combination of factors including lack of consensus amongst stakeholders, need for further deliberation on its policies and wide public backlash due to its major prohibitive nature.
In an attempt to regulate use of digital currency, RBI began piloting CBDC (Central Bank Digital Currency), also known as digital rupee (e₹), which was centralized and fully backed by the Central Bank, unlike the decentralized Bitcoin. This was a thinly-veiled attempt by the Government rooted in its desire to maintain control over digital money and provide a sovereign-backed alternative to cryptocurrency.
The next initiative by the government was introduced as a new taxation framework for regulating cryptocurrencies as a part of the Union Budget 2022-23. It imposed a flat 30% tax on all forms of income generated through means of cryptocurrency transactions. Moreover, a 1% TDS (Tax Deducted at Source) was also levied on all crypto transactions above a certain set limit. Additionally, it was also mandated that all platforms must pay 18% GST on all forms of crypto transactions. These steps, on one hand, were viewed in a positive light deeming them to be steps towards legitimacy and acceptability of cryptocurrency in India. While, they were also heavily criticized for being too bureaucratic and discouraging investment in crypto industry.
DECODING INDIA’S CRYPTO BILLS
Banning of Cryptocurency and Regulation of Official Digital Currency Bill, 2019
One of India’s earliest and most stringent attempt to regulate digital assets, this draft legislation was proposed by an Inter-Ministerial Committee on Virtual Currency constituted under Subhash Chandra Garg, the then Finance Secretary. This bill, attempting to impose a blanket ban on transactions of all private cryptocurrencies, included a number of punishments, consisting of but not limited to fines and a maximum 10-year jail sentence. Met with harsh criticism and strong opposition, it forced the policymakers to recognize the need for a more comprehensive assessment of global trends. All of these conflicting requirements meant that the bill was never submitted in Parliament!
Cryptocurrency and Regulation of Official Digital Currency Bill, 2021
This bill earmarked the transformation of the government’s stance towards cryptocurrency from prohibitive to a more regulatory approach. The primary focus of this bill was to establish a more regulated structure in crypto-domain in India by introducing responsibility and structure to the bitcoin industry. Though undisclosed, parliamentary debates and other sources indicate that the central aim of the bill was to outlaw transactions involving private cryptocurrencies outside of governmental regulation, like Ethereum, bitcoin, etc.
The bill also focused on creating a framework for introduction of a government regulated and official digital currency called Central Bank Digital Currency (CBDC). This helps minimize the extensive dependence on decentralized private cryptocurrencies, thus eventually mitigating risks associated with crypto trading like fraud, market manipulation and other security risks. It also sought advancement of crypto for legitimate purposes and stimulated its application in sectors like healthcare, finance and governance.
One of the greatest aspirations of the government through the drafting of this bill was to align India’s regulations with the global standards and practices through means of collaborations with international organizations to address trans-border crypto transactions.
Although this bill addresses many major concerns regarding flow of cryptocurrency in India, yet it requires periodic and constant monitoring of global and national developments in cryptocurrency field; assessing the impact of the regulations and adapting the policies according to the current necessities.
This bill was listed for introduction in the winter season of the Indian Parliament in 2021 but was never tabled. Although, there has been no official announcement of its reasons, several factors have likely contributed in its non-announcement. The reasons reportedly ranged from lack of consensus within the inter-ministerial organizations like Ministry of Finance, Ministry of Electronics and Information Technology and the Reserve Bank of India; Global uncertainty and need to observe the evolving global dynamics; considerations for political and economical impact and finally opting for an alternative approach in the form of taxation regulations and introduction of government centralized CBDC.
CONCLUSION AND SUGGESTIONS
India’s cryptocurrency landscape is at a pivotal stage. Presently, there is no specific legislation that regulates transaction of crytocurrency in India, leaving the sector in a regulatory gray area. Although, crypto in India is not illegal, it is devoid of a dedicated legal and formal framework which creates uncertainty and doubt in the minds of investors, business and crypto-organisations. The high tax on transactions discourages trading, leading to decreased market activity and liquidity of the assets and also hinders innovation in projects by organizations as a result of absence of structured policies. This is proving to be detrimental for India, as its pushing many companies to relocate to crypto-friendly jurisdictions where there is no issue of facing compliance risks due to absence of regulatory clarity.
To foster a resilient and dynamic cryptocurrency ecosystem in India, the government needs to implement an unambiguous, balanced and futuristic framework. Key measures should include introduction of a specific legislation that distinctly defines the crypto assets, their legal status and compliance requirements; establishment of a national crypto regulatory body to oversee compliance and enforcement and subsequently revision and reduction of the taxation policy to encourage investment and trading. India can only strengthen its crypto environment and pave the route for global leadership in the crypto revolution by integrating judicial governance and encouraging a creative approach. India is setting the stage for a vibrant digital economy that will encourage investment, growth, and technical improvement for years to come as it opens its doors to the development of cryptocurrencies.
