India's Evolving Approach to Cryptocurrency Regulation
Urgent regulation of cryptocurrencies and digital assets sought by India's Supreme Court
As of mid-2025, India's cryptocurrency regulation is undergoing rapid evolution, moving away from uncertainty and towards a more defined framework. Cryptocurrencies are legal to buy, sell, and hold but are not recognized as legal tender, classified as Virtual Digital Assets (VDAs) and subject to a 30% tax on profits and a 1% Tax Deducted at Source (TDS) on transactions over certain thresholds.
The Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), and the Finance Ministry are working towards a multi-agency regulatory framework, with SEBI already overseeing crypto tokens resembling securities. A significant recent development is the introduction of the COINS Act, a draft bill aiming to establish a clear and progressive regulatory framework.
The COINS Act proposes the creation of a new, specialized regulator called the Crypto Assets Regulatory Authority (CARA), independent from traditional financial regulators. It also suggests differentiation of oversight based on risk and custody functions, heavy regulation for centralized custodial platforms, and lighter or no regulation for decentralized protocols. The bill also includes temporary safe zones for Initial Coin Offerings (ICOs) and protection of developers from end-user liabilities, and elimination of punitive taxes on crypto transactions and limited mandatory user identification.
The evolving regulatory framework seeks to balance innovation facilitation, financial stability, compliance with global standards, and protecting retail investors against risks inherent in the crypto market. Establishing clear and balanced crypto regulations can stimulate innovation and investment in the blockchain and digital asset ecosystem, a sector with over 107 million users and a market size around $6.4 billion in India.
Regulation aims to reduce fraud, scams, and malpractice, crucial in a market with high retail investor participation. Tax clarity reduces uncertainty, and licensing regimes increase transparency and accountability among crypto service providers. The COINS Act’s focus on non-custodial rights also empowers users with enhanced privacy and control, balancing protection with innovation.
However, uncertainty still prevails regarding the government's stance on digital assets, with the Indian government yet to publish a defined regulatory framework for digital assets. The lack of concrete decisions has left users and businesses in a legal limbo, affecting investors and innovative companies in the blockchain and digital assets sector.
The court has expressed concern over the lack of regulation in the cryptocurrency sector, stating that the lack of regulation fosters an informal market, increasing associated risks. The court believes that well-designed regulation can facilitate economic growth, attract investment, and protect users. The court has also stated that India must take an active role in defining policies that govern cryptocurrencies, rather than continuing to let the sector grow informally and without adequate controls.
The court believes that ignoring the reality of cryptocurrencies is no longer an option, as appropriate regulation fosters innovation and economic growth by attracting companies and startups. Countries like Switzerland and Singapore have established clear policies that allow companies to operate safely and users to protect their assets and data. The court has emphasized that India's inaction puts the country at a disadvantage compared to nations that are taking advantage of appropriate regulation.
In the proposed COINS Act, a new regulatory body named Crypto Assets Regulatory Authority (CARA) is suggested to oversee the cryptocurrency industry, aiming to provide a clear and progressive framework for cryptocurrency investing and blockchain technology in the financial sector. This regulatory framework, if enacted, could stimulate innovation in the digital assets ecosystem, attract investments, and establish India as a competitive player in the global cryptocurrency market, which currently has over 107 million users and a market size around $6.4 billion. However, until a definitive framework is published, the cryptocurrency sector remains in a legal limbo, causing uncertainty for investors and businesses.
