COURTKUTCHEHRY SPECIAL REPORT ON DIGITAL ASSEST
RBI says crypto is just code, not currency; investors warned of tax and legal consequences
Cryptocurrency in India: Know the Laws and Risks Before You Invest
Income Tax Act, PMLA, and RBI rules govern digital coins; violations can lead to penalties and prosecution
By Our Legal Reporter
New Delhi: December 13, 2025:
Cryptocurrency continues to attract millions of Indian investors, but the legal landscape remains complex. Recently, RBI Deputy Governor T Rabi Sankar reiterated that cryptocurrency is “a piece of code, not a currency,” highlighting the risks of treating digital coins as money. While India has not banned crypto outright, it has imposed strict regulations. Investors must understand the laws governing crypto assets to avoid penalties, financial losses, or even criminal liability.
Also Read: Supreme Court Rules: Criminal Complaints Cannot Continue If Case Already Settled Abroad
Current Legal Status of Cryptocurrency in India
- Not legal tender: Cryptocurrencies like Bitcoin or Ethereum cannot be used to pay for goods or services.
- Legal to hold and trade: Investors can buy, sell, and hold crypto through registered exchanges.
- Taxed as Virtual Digital Assets (VDAs): Since 2022, crypto transactions are taxed under the Income Tax Act.
India’s approach is cautious—allowing investment but imposing strict compliance requirements.
Key Laws Investors Must Know
1. Income Tax Act (Section 115BBH)
- 30% flat tax on profits from crypto transactions.
- No set-off of losses: Losses from one crypto cannot be adjusted against gains from another.
- 1% TDS (Tax Deducted at Source): Applies on transfers above certain thresholds.
- Non-compliance risk: Failure to declare crypto income can lead to penalties and prosecution.
2. Prevention of Money Laundering Act (PMLA)
- Since 2023, crypto exchanges and intermediaries are covered under PMLA.
- Investors must ensure transactions are through registered platforms.
- Suspicious transactions can trigger investigations.
- Violations may lead to asset seizure and criminal charges.
3. RBI Guidelines
Also Read: ITAT Hyderabad Rules Severance Pay is Taxable: How Employees Can Avoid Costly Tax Mistakes
- RBI does not recognize crypto as currency.
- Banks are allowed to provide services to crypto exchanges, but only under strict compliance.
- Any attempt to use crypto as money may attract regulatory action.
4. SEBI Oversight (Indirect)
- SEBI monitors investment platforms and may regulate crypto-linked securities.
- Investors should avoid unregistered schemes promising high returns.
Risks of Violating Laws
- Tax Evasion: Not declaring crypto gains can lead to heavy penalties and prosecution under the Income Tax Act.
- Money Laundering Charges: Using crypto for suspicious transfers can attract PMLA action.
- Asset Seizure: ED (Enforcement Directorate) can freeze assets linked to illegal crypto transactions.
- Fraudulent Platforms: Investing through unregistered exchanges risks scams and loss of funds.
- Regulatory Crackdowns: Sudden changes in rules may impact liquidity and valuations.
Practical Advice for Investors
- Always declare crypto income in your ITR.
- Trade only on registered exchanges that comply with FIU (Financial Intelligence Unit) norms.
- Keep records of all transactions for tax and compliance.
- Avoid cash dealings or peer-to-peer trades outside regulated platforms.
- Stay updated on RBI and SEBI advisories.
Expert Opinions
Legal experts note that India’s crypto laws are evolving:
- Finlaw Consultancy (2025): Cryptos are legal to hold and trade but not legal tender.
- Vidhisastras (2025): Crypto is governed under PMLA and strict tax rules.
- LinkedIn Legal Analysis (2025): Over 15 million Indians trade crypto, but compliance is critical.
Experts warn that ignoring these laws can lead to severe consequences.
Broader Implications
India’s cautious stance reflects global trends. While countries like the US and EU regulate crypto as securities or commodities, India treats them as taxable digital assets. The Supreme Court has upheld the right to trade crypto, but the government insists on strict oversight.
For investors, this means crypto is an investment class, not a currency. Violating rules can lead to financial ruin and legal battles.
📌 Crypto Tax Rules in India at a Glance
💰 Income Tax Act (Section 115BBH)
- 30% flat tax on profits from crypto transactions.
- No set-off of losses: Losses from one crypto cannot offset gains from another.
- No deductions allowed: Except for cost of acquisition.
- 1% TDS (Tax Deducted at Source) on transfers above thresholds.
🛡️ Prevention of Money Laundering Act (PMLA)
- Crypto exchanges and intermediaries must comply with KYC and reporting norms.
- Suspicious transactions can trigger ED investigations.
- Violations may lead to asset seizure and criminal charges.
🏦 RBI Guidelines
- Crypto is not legal tender in India.
- Banks can provide services to crypto exchanges only under strict compliance.
- Using crypto as money for payments may attract regulatory action.
Also Read: ITAT Clarifies: Capital Loss Can Be Set Off Against Capital Gain Despite Different Tax Rates
✅ Do’s for Investors
- Trade only on registered exchanges.
- Declare crypto income in your ITR.
- Keep transaction records for compliance.
- Stay updated on RBI and SEBI advisories.
❌ Don’ts for Investors
- Don’t assume crypto is tax-free.
- Don’t use crypto for payments in India.
- Don’t invest via unregistered or foreign platforms.
- Don’t ignore TDS obligations.
Conclusion
Cryptocurrency offers opportunities but comes with risks. In India, crypto is not money—it is a taxable digital asset. Investors must comply with the Income Tax Act, PMLA, and RBI guidelines. Violating these laws can result in penalties, asset seizure, and even prosecution.
The message is clear: invest responsibly, declare your gains, and follow the law.
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Also Read: ITAT Ruling: No Section 69C Additions on Property Deals Based on Unsigned Draft Agreements