Cryptocurrency has emerged as a revolutionary financial instrument globally, challenging traditional banking systems and fostering decentralized transactions. In India, the burgeoning interest in cryptocurrencies, especially Bitcoin and Ethereum, has sparked a plethora of legal debates and regulatory concerns. With the surge in searches and inquiries regarding the legality of cryptocurrency, this article delves into the current legal framework surrounding cryptocurrency in India, analyzes recent developments, and explores potential prospects.

Legal Landscape of Cryptocurrency in India

The legal status of cryptocurrency in India has been subject to ambiguity and regulatory oscillations. The Reserve Bank of India (RBI), India’s central bank, initially expressed scepticism and caution regarding cryptocurrencies, citing concerns about financial stability, money laundering, and illicit transactions. In April 2018, the RBI issued a circular prohibiting regulated entities from dealing in virtual currencies or providing services for facilitating any person or entity in dealing with or settling virtual currencies.

However, this circular faced legal challenges, with the Supreme Court of India overturning the RBI’s ban in March 2020. The apex court deemed the RBI’s circular unconstitutional, citing disproportionate restrictions on the cryptocurrency sector. This landmark decision provided a significant impetus to the cryptocurrency market in India, fostering renewed interest and investment.

Post the Supreme Court’s verdict, the regulatory landscape for cryptocurrencies remained uncertain, with sporadic reports of proposed legislation to regulate or ban cryptocurrencies altogether. In November 2019, a draft bill titled “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill” was reportedly circulated, proposing a blanket ban on cryptocurrencies and criminalizing their possession, mining, trading, and issuance. However, this bill has not been tabled in the Parliament to date.

Current Regulatory Framework

Despite the absence of specific legislation governing cryptocurrencies, regulatory bodies in India have attempted to provide clarity and oversight within existing legal frameworks. In March 2020, the Supreme Court’s ruling effectively lifted the ban on cryptocurrencies imposed by the RBI circular, allowing individuals and entities to engage in cryptocurrency transactions without regulatory hindrance.

Subsequently, the Securities and Exchange Board of India (SEBI), the country’s securities regulator, and the Ministry of Finance have indicated a willingness to explore regulatory frameworks for cryptocurrencies. SEBI has proposed classifying cryptocurrencies as digital assets and subjecting them to securities regulations to mitigate risks and protect investors. Additionally, the government has emphasized the need for transparent and robust regulatory mechanisms to curb illegal activities while fostering innovation in the cryptocurrency sector.

Taxation and Compliance

One of the critical aspects of cryptocurrency regulation pertains to taxation and compliance. The Income Tax Department of India has issued guidelines for taxing cryptocurrency transactions, treating them as capital gains or business income, depending on the nature of the transaction and the taxpayer’s involvement. Cryptocurrency exchanges and traders are required to maintain comprehensive records of transactions, including the source of funds, counterparties involved, and the purpose of transactions, to ensure compliance with taxation laws and prevent money laundering or tax evasion.

Furthermore, the Goods and Services Tax (GST) regime has raised questions regarding the applicability of GST on cryptocurrency transactions. While cryptocurrencies themselves are not subject to GST, services provided by cryptocurrency exchanges, such as transaction fees or trading commissions, may attract GST under certain circumstances.

Challenges and Concerns

Despite the growing acceptance and adoption of cryptocurrencies in India, several challenges and concerns persist, hindering the mainstream integration of digital assets into the financial ecosystem. The volatile nature of cryptocurrency prices poses risks for investors, leading to concerns about speculative bubbles and market manipulation. Moreover, the decentralized and pseudonymous nature of cryptocurrencies makes them susceptible to misuse for illegal activities, including money laundering, terrorist financing, and tax evasion.

Regulatory ambiguity and the absence of a comprehensive legislative framework have also deterred institutional investors and traditional financial institutions from fully embracing cryptocurrencies. The lack of clarity regarding the legal status of cryptocurrencies has led to confusion among market participants, hindering innovation and investment in the sector.

Future Prospects and Recommendations

Despite the challenges and regulatory uncertainties, the prospects of cryptocurrency in India remain promising, driven by technological advancements, evolving consumer preferences, and global trends towards digitalization. To realize the full potential of cryptocurrencies and blockchain technology, policymakers and regulators must adopt a balanced approach that fosters innovation while addressing legitimate concerns related to consumer protection, financial stability, and regulatory compliance.

Key recommendations for policymakers include:

  1. Formulating a comprehensive regulatory framework: The government should expedite the process of drafting and enacting legislation specifically tailored to regulate cryptocurrencies and blockchain technology. The regulatory framework should provide clarity on the legal status of cryptocurrencies, define the roles and responsibilities of various stakeholders, and establish robust mechanisms for oversight and enforcement.
  2. Promoting education and awareness: Given the complex nature of cryptocurrencies and blockchain technology, there is a need to educate the public, investors, and policymakers about their potential benefits and risks. Initiatives such as workshops, seminars, and educational campaigns can help raise awareness and foster informed decision-making in the cryptocurrency ecosystem.
  3. Encouraging innovation and investment: To stimulate innovation and investment in the cryptocurrency sector, the government should create a conducive regulatory environment that incentivizes startups, entrepreneurs, and investors. Providing tax incentives, grants, and regulatory sandboxes can encourage experimentation and the development of innovative blockchain solutions across various industries.
  4. Enhancing collaboration and international cooperation: Cryptocurrency regulation is a global challenge that requires coordinated efforts and collaboration among regulators, law enforcement agencies, and international organizations. India should actively engage with global stakeholders to share best practices, exchange information, and develop common standards for regulating cryptocurrencies and combating illicit activities.


The legal status of cryptocurrency in India remains a subject of debate and regulatory scrutiny, with stakeholders navigating through a complex and evolving landscape. While the Supreme Court’s decision to overturn the RBI’s ban provided a much-needed boost to the cryptocurrency market, regulatory clarity and certainty are essential to unlock the full potential of digital assets and blockchain technology.

By adopting a proactive and collaborative approach, India can harness the transformative power of cryptocurrencies to drive economic growth, financial inclusion, and technological innovation. With the right regulatory framework and supportive ecosystem, India has the opportunity to emerge as a global leader in the cryptocurrency space, paving the way for a more inclusive and decentralized financial future.

Adv. Khanak Sharma

Leave a Reply

Your email address will not be published. Required fields are marked *

This field is required.

This field is required.


The following disclaimer governs the use of this website (“Website”) and the services provided by the Law offices of Kr. Vivek Tanwar Advocate & Associates in accordance with the laws of India. By accessing or using this Website, you acknowledge and agree to the terms and conditions stated in this disclaimer.

The information provided on this Website is for general informational purposes only and should not be considered as legal advice or relied upon as such. The content of this Website is not intended to create, and receipt of it does not constitute, an attorney-client relationship between you and the Law Firm. Any reliance on the information provided on this Website is done at your own risk.

The Law Firm makes no representations or warranties of any kind, express or implied, regarding the accuracy, completeness, reliability, or suitability of the information contained on this Website.

The Law Firm disclaims all liability for any errors or omissions in the content of this Website or for any actions taken in reliance on the information provided herein. The information contained in this website, should not be construed as an act of solicitation of work or advertisement in any manner.