India occupies a strange position in the crypto world. It has one of the largest user bases of any country, a tax regime that is among the strictest anywhere, mandatory anti-money-laundering registration for exchanges — and still no comprehensive law that actually regulates crypto as an asset class. This explainer walks through where things stand as of October 2026: what is law, what is proposal, and what it means for an ordinary investor.
Important: This is general information, not tax or legal advice. Tax rules are applied to individual facts. Speak to a chartered accountant before filing.
Is crypto legal in India?
Owning, buying and selling crypto is not illegal in India. But “legal” and “regulated” are different things.
- There is no dedicated law recognising crypto as currency, a security or a regulated product. A 2021 draft bill to ban private cryptocurrencies was never introduced in Parliament, and a government discussion paper on crypto policy has been deferred repeatedly (Reuters, July 2026). An April 2026 report described it as delayed for at least the fifth time (The Crypto Times).
- Crypto is taxed (heavily), and crypto businesses are covered by anti-money-laundering law.
So the state’s current approach can be summed up as: tax it, track it, but don’t legitimise it.
The regulators and where they stand
Reserve Bank of India (RBI)
The RBI remains the most sceptical voice. In submissions to the Parliamentary Standing Committee on Finance in 2026, RBI officials backed a “calibrated containment strategy leaning towards prohibition” — keeping banks and regulated institutions completely insulated from crypto assets and privately issued stablecoins, and keeping crypto out of payments and settlements. The RBI said prohibition “continues to merit careful consideration” (Economic Times).
Notably, the RBI draws a line between speculative private crypto and tokenised government securities, which it wants to see develop on regulated infrastructure (The Crypto Times).
Parliament’s finance committee
In a report tabled on 23 July 2026 on the proposed Securities Markets Code, 2025, the Standing Committee on Finance recommended that, until a full legal framework exists, the government consider an interim regime run by Self-Regulatory Organisations (SROs) under the oversight of a statutory regulator such as SEBI or the RBI (MediaNama, The Crypto Times).
This is a recommendation, not law. Industry voices quoted by MediaNama cautioned against reading it as a definitive policy shift.
FIU-IND (anti-money-laundering)
Since a March 2023 government notification, Virtual Digital Asset Service Providers (VDA SPs) — exchanges, custodians, wallet providers and the like — are “reporting entities” under the Prevention of Money-laundering Act, 2002. They must register with the Financial Intelligence Unit–India, perform KYC, keep records and file suspicious-transaction reports (FIU-IND circular).
Updated AML/CFT guidelines issued in January 2026 make clear that these obligations are activity-based and apply irrespective of physical presence in India: an offshore exchange serving Indian users must register too, or face action under Section 13 of the PMLA (FIU-IND guidelines, Jan 2026).
According to the Economic Times, India has 54 FIU-registered crypto service providers, and about 3.93 crore KYC-verified users hold crypto assets (ET).
What it means for you: use FIU-registered platforms. Funds on unregistered offshore platforms face real access and enforcement risk.
How crypto is taxed
What counts as a “VDA”?
Tax law uses the term Virtual Digital Asset: broadly, any information, code, number or token (other than Indian or foreign currency) generated through cryptographic or other means that provides a digital representation of value and can be transferred, stored or traded electronically. NFTs are covered too (Income Tax Department, Section 115BBH text).
The new Act: same rules, new section numbers
India’s direct-tax law was rewritten as the Income-tax Act, 2025, effective 1 April 2026. It carries the crypto regime forward with renumbered sections and a definition of VDA that now explicitly includes “crypto-asset” (Candour Legal). Per Tax Garden, the old Section 115BBH (tax on VDA income) maps to Section 194 of the new Act, and the old Section 194S (TDS) maps to Section 393. Budget 2026 did not change the rates.
Most articles (and your FY 2025-26 return) still use the old numbers, so we use both below.
Rule 1: A flat 30% on gains
Income from transferring a VDA is taxed at a flat 30%, plus applicable surcharge and 4% health-and-education cess, regardless of your income slab or how long you held the asset (Candour Legal). There is no basic exemption threshold for this income, and no lower long-term rate. Candour Legal notes the effective marginal rate for high earners can exceed 42% once surcharge and cess are added.
Rule 2: Only the purchase cost is deductible
You may deduct only the cost of acquisition. Exchange fees beyond that, internet bills, hardware, advisory fees — none are allowed (Section 115BBH(2)(a)).
Rule 3: Losses are (mostly) useless
This is the rule that hurts most. A loss on one VDA cannot be set off against gains on another VDA, against any other income, or carried forward to future years (Section 115BBH(2)). If you make ₹1 lakh on Bitcoin and lose ₹1 lakh on another token in the same year, you still owe tax on the ₹1 lakh gain.
A worked example
Say in FY 2026-27 you:
- buy 0.01 BTC for ₹60,000 and sell it for ₹75,000 → gain of ₹15,000;
- buy ₹20,000 of an altcoin and sell it for ₹12,000 → loss of ₹8,000.
Taxable VDA income is ₹15,000, not ₹7,000. Tax at 30% is ₹4,500, plus 4% cess (₹180) = ₹4,680 (before any surcharge, which applies only at higher income levels). The ₹8,000 loss simply disappears.
(Illustrative numbers only.)
Rule 4: 1% TDS on sales
The buyer (in practice, your exchange) deducts 1% TDS on the sale consideration. No TDS is required if the total consideration in the financial year does not exceed ₹50,000 for “specified persons” (broadly, individuals/HUFs without business income or with small businesses) or ₹10,000 for others (Tax Garden). Without a PAN, the rate rises to 20% (Candour Legal).
TDS is not an extra tax — it is an advance payment credited against your final liability. It shows up in Form 26AS/AIS, and you claim it when you file.
Rule 5: Report it in Schedule VDA
Crypto gains are reported in Schedule VDA of ITR-2 or ITR-3 (not ITR-1) (Tax Garden). You’ll need dates of acquisition and transfer, cost and sale value for each transaction.
The compliance net is tightening
Reporting obligations on platforms are expanding fast:
- From 1 April 2026, prescribed reporting entities must file crypto-asset transaction statements, and the Finance Act 2026 added penalties of ₹200 per day for failing to file and ₹50,000 for inaccurate filings (Tax Garden).
- India is moving toward the OECD’s Crypto-Asset Reporting Framework (CARF), with a path set for April 2027 (Candour Legal) — meaning cross-border exchange data will increasingly flow to Indian tax authorities.
- The tax department has itself warned that offshore trading is hard to track, which is precisely why reporting is being widened (Reuters).
The practical conclusion: assume the tax department can see your transactions. Under-reporting is a poor bet.
Practical checklist for Indian crypto investors
- Use FIU-registered exchanges and keep your PAN linked to avoid 20% TDS.
- Export your full transaction history every quarter, not just at filing time.
- Track cost basis per transaction; you’ll need it for Schedule VDA.
- Remember swaps count. Exchanging one token for another is a “transfer” and can trigger tax.
- Reconcile TDS in AIS/26AS against your exchange statements.
- Don’t count on loss harvesting — it does not work for VDAs.
- Use ITR-2 or ITR-3, and get a CA if you have DeFi, staking or offshore activity.
- Watch policy news. An SRO model, stricter RBI-backed curbs or new reporting rules could all change the landscape.
The bottom line
As of October 2026, India’s crypto policy is effectively “tax and track.” Crypto is legal to hold and trade, platforms must be FIU-registered, and gains attract one of the world’s harshest tax treatments, with no loss offsets. A formal regulatory framework remains under debate, with the RBI pushing for containment and a parliamentary panel suggesting a supervised SRO route. Until that is resolved, compliance — clean records, registered platforms, accurate returns — is your best protection.
Sources linked inline; position as of 12 October 2026. Not tax, legal or financial advice.