Key takeaways
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With over 100 million crypto users, India still lacks a comprehensive Virtual Digital Assets (VDA) law. Existing rules address tax and anti-money laundering obligations, but they do not fully cover consumer protection or broader market conduct.
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Issues under discussion include the absence of unified investor protection rules, unregulated business practices and fears that India’s 30% tax plus 1% TDS regime will push users to offshore platforms.
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Stakeholders discuss a risk-based VDA framework, licensing requirements for exchanges and depositories, business conduct standards, RWA-specific regulations, and improved data and reporting systems.
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The proposed safeguards include clearer custody standards, defined insolvency procedures, stricter disclosure standards, reserve transparency and closer monitoring of leverage and liquidity risks.
India is home to over 100 million crypto users, many of whom are younger and very tech-savvy. Yet the country still lacks clear and comprehensive regulations for virtual digital assets (VDA).
A formal review of VDA policies is currently underway. This could shift the current system, which mainly focuses on high taxes and basic anti-money laundering (AML) rules, towards a more robust framework prioritizing investor protection.
This article describes the VDA regulations currently in force in India as of November 24, 2025. It explains what the revision of the VDA entails, highlights the main issues considered, summarizes the regulatory frameworks being considered, and discusses the potential benefits that the revision could bring.
How India currently regulates VDAs
In India, the term “VDA” is defined in the Income Tax Act through amendments introduced in 2022. It includes cryptocurrencies, non-fungible tokens (NFTs) and any other digital assets that the government may specify. VDAs are not legal tender, but individuals are allowed to buy, sell and hold them.
India has strict taxes on VDAs, including a flat 30% tax on profits from their transfer and a 1% withholding tax on transactions above certain limits. VDA losses cannot be offset against other income.
Since March 2023, companies offering VDA services must register with the Financial Intelligence Unit-India (FIU-IND). They are also required to follow AML and Know Your Customer (KYC) rules under the Prevention of Money Laundering Act.
All VDA service providers in India, including domestic and offshore platforms that serve Indian users, are required to register with the FIU-IND as reporting entities.
However, there is still no comprehensive law governing VDAs. This gap has created confusion and contributed to a flight of capital and talent. India’s current approach relies on high taxation and anti-money laundering requirements, but it does not yet provide comprehensive regulation or strong consumer protections.
Did you know? Regulation is one of the most dynamic areas of global finance. Unlike traditional financial laws which often take years to change, crypto regulations can evolve in months.
What India VDA Exam Entails
India’s G20 presidency in 2023, as well as recommendations from bodies such as the Financial Stability Board, have encouraged the country to adopt international standards for crypto regulation.
In May 2025, the Supreme Court highlighted the regulatory void and called for clearer laws. Following this, the Central Board of Direct Taxes sought feedback from stakeholders on the need for a dedicated VDA law.
The review would cover several key areas:
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Balancing innovation and investor protection
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Create appropriate monitoring for different types of VDAs, including trading tokens, stablecoins and tokenized assets
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Aligning with global standards while protecting the Indian monetary system and preventing money laundering
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Clarify the roles of regulators and provide greater legal certainty to businesses and users.
Key Questions in VDA Examination in India
The ongoing review of India’s VDA framework aims to resolve several fundamental challenges and areas of ambiguity. The aim is to establish a clearer and more robust regulatory system. Here are the main questions under study:
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Investor protection: There is no unified law protecting crypto investors. Key risks include unclear rules on how exchanges must hold customer funds, lack of defined procedures in the event of an exchange’s failure, product mis-selling, and insufficient disclosure standards.
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Market integrity and systemic risks: Regulators are concerned about practices such as wash trading, hidden leverage and the use of offshore platforms. Unregulated stablecoins and decentralized exchanges could also create risks for the Indian financial system.
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Money laundering: Although VDA service providers are covered by anti-money laundering (AML) laws, it remains difficult to enforce these requirements on foreign platforms. Decentralized finance (DeFi) also falls outside the scope of current regulations.
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Taxation: The 30% tax and 1% withholding tax (TDS), combined with the inability to offset losses, have pushed many users to unregulated offshore platforms and slowed local innovation.
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Tokenized Real Assets (RWA): India does not yet have a regulatory framework for RWAs. This gap could become significant if tokenization of real-world assets is increasingly adopted.
Did you know? Not all countries tax crypto transactions. Countries like Portugal and Singapore impose no capital gains tax, but may tax crypto when it is converted into goods or services.
Regulatory frameworks on the table
The review should consider several regulatory models. Here are some concepts that can be discussed:
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VDA law with risk-based monitoring: A dedicated VDA law could classify assets by risk and function, such as payment tokens, utility tokens, security-like tokens, and asset-referenced tokens. Monitoring may depend on the activity involved.
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Licensing standards for VDA service providers: Exchanges, custodians, wallet providers and brokers may be required to obtain licenses or registration. They should also comply with governance, capital, cybersecurity, auditing and asset segregation standards.
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Rules of business conduct: Standardized risk disclosures, ongoing product-level reporting and clear advertising standards for VDAs can be introduced. Regulation would likely cover custody practices, conflicts of interest, segregation of client assets and insolvency proceedings. Advertising rules may align with the Advertising Standards Council of India guidelines.
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Regulation of user funds: The rules may require strict segregation of user funds, regular on-chain and off-chain reconciliation, and greater transparency around reserves. A statutory mechanism can be created to protect user assets held by VDA platforms.
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Regulation of RWAs: A separate regulatory approach could relate to tokenized RWA platforms and VDAs that involve high-risk payment features. These rules could include central bank involvement, capitalization requirements, cross-border flow controls and sandbox testing.
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Data and reports: Regulators may require periodic or real-time reporting on trading volumes and order book data. Agencies such as the Reserve Bank of India, Securities and Exchange Board of India, FIU-IND and others will need to coordinate closely to ensure effective oversight of crypto activity.
A well-designed regulatory framework for VDAs in India can bring significant benefits. This can strengthen the protection of users and the financial system while supporting responsible growth in the sector.
Did you know? After the Financial Action Task Force rules were adopted globally, crypto exchanges had to follow strict KYC, reporting, and monitoring standards similar to those applied to banks. This has resulted in major compliance improvements, including the use of on-chain analytics tools to track suspicious transactions across blockchains.
How a thoughtful review of the VDA could strengthen protections
A well-designed regulatory framework for VDAs could provide several key benefits:
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Clearer guarantees for users without hindering innovation: Clearly defining the responsibilities and obligations of service providers will give users stronger rights and clearer remedies. For example, users would know in advance what happens if a trade fails.
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Greater market integrity and greater resilience of the financial system: Regulation can improve monitoring of leverage, liquidity mismatches, margining practices and reserve requirements. Effective rules for tokenized assets can also reduce the risk of problems spilling over into traditional finance.
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Reduced money laundering risks: Licensing requirements, combined with information sharing between global regulators, can make it more difficult for unregulated offshore platforms to operate. This strengthens measures to combat money laundering, terrorist financing and investor protection.
A comprehensive regulatory framework can encourage companies and developers to train and hire talent in India instead of relocating their operations abroad.
