Cryptocurrency has become a significant topic of discussion as digital currencies continue to rise in popularity globally. India, with its massive market and growing tech-savvy population, has been one of the most important players in the world of crypto trading. 

However, despite its widespread use, the legal status of cryptocurrency in India remains unclear and is constantly evolving. The burning question remains: Is cryptocurrency banned in India? 

In this blog, we’ll break down the legal updates surrounding cryptocurrency, the risks involved in trading and investing, and what the future holds for the industry.

Is Cryptocurrency Banned in India?

As of 2025, cryptocurrency is not banned in India. The Reserve Bank of India (RBI) and the government have not enforced a blanket ban on cryptocurrencies. However, India’s relationship with digital currencies has been fraught with regulatory uncertainty. While cryptocurrency trading is legal, there are restrictions and unclear regulatory frameworks that investors and businesses must understand.

Historical Context

In 2018, the RBI imposed a banking ban on cryptocurrencies, which prohibited financial institutions from providing services related to cryptocurrency transactions. This decision effectively halted many crypto activities in the country, causing massive confusion. 

However, in 2020, the Supreme Court of India ruled that the RBI’s banking ban was unconstitutional and lifted the restrictions, allowing cryptocurrency trading to resume

It is important to note that while cryptocurrency trading is legal, cryptocurrencies are not recognized as legal tender in India. This means they are not considered official currency for payments or settlements, and their use is limited to investment and trading activities rather than as a medium of exchange.

Key Legal Updates on Cryptocurrency in India

The Indian government’s stance on cryptocurrency continues to evolve, with significant developments shaping the market. While cryptocurrency remains legal, ongoing discussions and proposed regulations are creating a complex landscape for both investors and businesses.

The 2021 Cryptocurrency Bill

In 2021, the Indian government proposed the Cryptocurrency and Regulation of Official Digital Currency Bill. This bill was designed to address the growing popularity of private cryptocurrencies like Bitcoin, Ethereum, and others. 

The bill aimed to achieve the following objectives:

• Ban private cryptocurrencies and restrict their use.
• Allow the creation of a government-backed Central Bank Digital Currency (CBDC).
• Impose severe penalties for crypto trading or investment.

However, the bill was never formally introduced in Parliament, and the government has continued to signal that it might take a cautious approach toward crypto regulation.

Taxation on Cryptocurrencies

In the 2022 Union Budget, India introduced specific taxation measures for cryptocurrency:

• A 30% tax on income generated from cryptocurrency trading or investments.
• A 1% tax deducted at source (TDS) on crypto transactions, aiming to track and report crypto-related earnings.

The taxation of cryptocurrencies as “virtual assets” is still an evolving issue, with experts calling for clearer guidelines.

These tax measures were designed to curb the rising popularity of cryptocurrencies while also ensuring that the government can track crypto transactions. However, it has created a burden for traders, as no deductions are allowed for crypto-related expenses.

Central Bank Digital Currency (CBDC)

The Indian government has also been exploring the introduction of a Central Bank Digital Currency (CBDC), which would be a government-backed digital currency. The Reserve Bank of India (RBI) has already launched pilot programs for CBDC, signaling the government’s interest in establishing a regulated alternative to private cryptocurrencies.

While these legal updates provide insight into the evolving stance on cryptocurrencies, there are still significant risks associated with investing in digital currencies. Let’s explore some of these risks in detail.

Risks of Investing in Cryptocurrency in India

Although cryptocurrency is not banned, it comes with its own set of significant risks. The volatile nature of the market, combined with regulatory ambiguity, makes crypto investments a high-stakes venture. 

Let’s take a closer look at these risks.

Regulatory Uncertainty

One of the biggest concerns for crypto investors in India is regulatory uncertainty. A notable example of this uncertainty was seen in 2018, when the Reserve Bank of India (RBI) imposed a ban on cryptocurrency transactions by banks. This sent shockwaves through the Indian crypto market, with many traders losing access to their funds. Though the Supreme Court lifted the ban in 2020, it left investors uncertain about future regulatory moves. 

The government has since proposed various bills that could impact the market, including the Cryptocurrency and Regulation of Official Digital Currency Bill in 2021, which aims to ban private cryptocurrencies. As the bill has yet to be passed, investors still face the threat of sudden changes in the regulatory environment.

Market Volatility

Cryptocurrencies are infamous for their high volatility. In 2021, Bitcoin’s price surged to an all-time high of $64,285 in April, only to crash by half in the following months and close at $37,332.85. This extreme volatility was also seen in India during the same period. Bitcoin prices fluctuated sharply, affecting local investors. 

For example, investors who bought Bitcoin during its peak in April found themselves dealing with significant losses when the market corrected. This kind of rapid fluctuation poses a serious risk to anyone looking to make long-term profits in the crypto market.

Security Concerns

Despite blockchain technology’s security, crypto exchanges and wallets remain vulnerable to hacks. A prime example of this is the WazirX hack in 2024. WazirX, one of India’s largest cryptocurrency exchanges, experienced a significant data breach that exposed users’ personal details. 

Additionally, in 2018, a large-scale crypto scam known as the BitConnect scam took place. Investors lost huge sums of money due to the failure of the BitConnect platform, which promised unsustainable returns. These incidents highlight the vulnerabilities in the crypto ecosystem, especially when dealing with lesser-known exchanges and unregulated platforms.

Taxation Ambiguities

While India has introduced taxation measures for cryptocurrency, many ambiguities remain, particularly concerning GST (Goods and Services Tax). In the 2022 Union Budget, the government proposed a 30% tax on crypto gains, but it left the application of GST unclear. Investors have been left unsure about how to report crypto transactions and pay taxes correctly. 

That’s why crypto traders in India often find themselves in a gray area, not knowing if GST should be levied on crypto-to-crypto transactions. This creates challenges, especially for those engaging in regular trading or large transactions, who may face tax penalties or difficulties in complying with evolving rules.

Legal Issues for Businesses

Indian businesses wishing to accept or trade in cryptocurrencies face significant legal hurdles. One such case is ZebPay, one of India’s largest cryptocurrency exchanges. ZebPay had to shut down operations in India in 2018 following the RBI banking ban. 

Even after the Supreme Court’s verdict lifted the ban, businesses like ZebPay and others have faced hurdles with banks, which remain reluctant to deal with crypto transactions. This uncertainty has prevented many businesses from fully integrating cryptocurrencies into their operations, impacting the growth of crypto adoption in India.

These real-world examples emphasize the challenges that investors and businesses face in the Indian cryptocurrency market. They highlight how regulatory changes, market volatility, security breaches, and taxation ambiguities can significantly impact crypto investments and operations.

What Does the Future Hold for Cryptocurrency in India?

The future of cryptocurrency in India remains uncertain, but several developments are likely to shape its trajectory in the coming years. While there is growing interest in digital currencies, the regulatory framework is still evolving, leaving room for both opportunities and challenges. Here are some key factors to consider:

Regulatory Clarity

As the cryptocurrency market continues to grow, the Indian government is likely to introduce clearer and more comprehensive regulations. 

The 2021 Cryptocurrency Bill and ongoing discussions around digital currencies indicate that the government is keen on regulating the space to prevent misuse while promoting innovation. Investors and businesses will benefit from greater regulatory clarity, which could provide legal protection and create a safer environment for crypto investments.

Central Bank Digital Currency (CBDC)

One major development that could influence the future is the introduction of a Central Bank Digital Currency (CBDC). If implemented, a CBDC would provide a state-backed, regulated alternative to cryptocurrencies like Bitcoin and Ethereum, helping address concerns about volatility and security. 

If successfully launched, a CBDC could enhance digital payments and financial inclusion, while also offering a more regulated environment compared to decentralized digital currencies. 

Global Influence and Adoption

As the global landscape shifts towards clearer crypto regulations, India is likely to align with international standards. The regulatory frameworks in countries like the U.S., EU, and Japan may offer guidance, helping India foster trust and confidence in its crypto market. Additionally, global trends toward blockchain technology and cryptocurrency adoption will likely push India to expedite its regulatory developments.

As these developments unfold, India’s cryptocurrency sector is expected to become more regulated and secure. Investors and businesses will need to stay proactive, adapting to new rules and seizing emerging opportunities.

Why Crypto Regulation Matters and How AiPrise Helps

Effective crypto regulation is crucial for safeguarding investors and maintaining a secure and transparent market. It plays a key role in preventing fraud, money laundering, and other illegal activities while fostering trust and long-term stability in the industry.

AiPrise supports crypto businesses by offering the following services:

• Advanced Identity Verification: Using AI and global data to confirm user identities quickly and accurately.
• Real-Time AML Monitoring: Continuous transaction screening to detect suspicious activity and comply with regulations.
• Regulatory Compliance: Keeping pace with evolving KYC and AML requirements to avoid penalties and fines.
• Risk Reduction: Minimizing fraud and financial crime risks within the cryptocurrency ecosystem.
• Enhanced Trust: Helping businesses build credibility and confidence with investors and users.

Partnering with AiPrise enables crypto businesses in India to confidently meet regulatory demands while fostering a secure and transparent environment.

Conclusion

While cryptocurrency is not banned in India, the regulatory environment remains uncertain, with significant risks like market volatility, security breaches, and taxation issues. Investors and businesses must manage these challenges carefully, staying informed about legal changes that may impact their operations.

As India works toward clearer regulations, the introduction of a Central Bank Digital Currency (CBDC) could stabilize the market. However, the future remains uncertain, and businesses should prepare for potential changes in the crypto regulatory landscape. With the right tools and strategies, investors can mitigate risks and stay compliant. 

Book a Demo today to discover how Aiprise can help you stay ahead of evolving cryptocurrency regulations and ensure your business remains secure and compliant.

Frequently Asked Questions(FAQs)

1. Is cryptocurrency completely banned in India?
No, cryptocurrency is not banned in India. It is legal to trade, but the government is still developing regulations and has proposed a bill to regulate the space.

2. What taxes are applied to cryptocurrency in India?
India imposes a 30% tax on crypto gains and a 1% TDS on crypto transactions. However, the application of GST on crypto transactions is still ambiguous.

3. Can businesses accept cryptocurrency in India?
Yes, businesses can accept cryptocurrency, but they face challenges due to the unclear regulatory framework and difficulties with banking and financial institutions.

4. What is the future of cryptocurrency in India?
The future of cryptocurrency in India depends on the development of clearer regulations and the potential introduction of a Central Bank Digital Currency (CBDC). These developments could provide stability and regulate the crypto market more effectively.

5. How can I stay updated on cryptocurrency regulations in India?
It’s important to follow reliable news sources, government publications, and industry updates. You can also consult with experts or use compliance platforms to keep track of evolving regulations and ensure your business stays compliant.