India Review to Strengthen Crypto Protections for Users
A significant portion of India’s burgeoning cryptocurrency market – estimated at over 100 million users – currently operates without a comprehensive, legally defined framework. Despite existing regulations focused on taxation and Anti-Money Laundering (AML) obligations, a critical gap remains in consumer protection and maintaining overall market stability. This situation is characterized by a lack of unified investor-protection rules, largely unregulated trading practices, and concerns about the utilization of offshore platforms favored due to India’s high taxation regime – a 30% profit tax combined with a 1% Tax Deducted at Source (TDS). These factors are contributing to a systemic outflow of capital and talent.
The ongoing review of Virtual Digital Assets (VDAs) in India is driven by several converging factors. The country’s presidency of the G20 in 2023, coupled with recommendations from organizations like the Financial Stability Board, have emphasized the adoption of international standards for crypto regulation. A pivotal moment occurred in May 2025 when the Supreme Court highlighted this regulatory deficit, urging the Central Board of Direct Taxes to investigate the potential need for a dedicated VDA law. This review encompasses a wide range of considerations, including balancing innovation with robust investor protections, tailoring oversight for different VDA types – encompassing trading tokens, stablecoins, and tokenized assets – aligning with global standards, and safeguarding India’s monetary system while proactively curbing money laundering. The investigation will cover key areas like market integrity, the safe handling of user funds and establishing clearer rules about what happens if an exchange fails, creating robust standards for asset custodianship, and addressing the evolving regulatory landscape of Decentralized Finance (DeFi).
The scope of the VDA review is meticulously designed to address several significant challenges and ambiguities within the current ecosystem. The primary focus centers around establishing a more resilient and transparent regulatory system. Key elements under consideration include a risk-based classification framework, with regulations varying depending on the nature and function of the VDA, such as payment tokens, utility tokens, security-like tokens and asset-referenced tokens. A comprehensive licensing regime is proposed for VDA service providers—including exchanges, custodians, wallet providers, and brokers—subject to stringent standards for governance, capital, cybersecurity, audit, and asset segregation. Further, regulations are expected to outline clear conduct-of-business rules, mandating standardized risk disclosures, ongoing reporting, and responsible advertising practices, ensuring that user funds are maintained with strict separation, regular reconciliation, and increased transparency. The review will also specifically confront the rise of Tokenized Real-World Assets (RWAs), a rapidly developing area that currently falls outside the existing regulatory perimeter.
The proposed regulatory models being evaluated aim for a balanced approach—one that both safeguards users and promotes sustainable growth within the Indian cryptocurrency sector. A core concept is a dedicated VDA law, incorporating a risk-based oversight approach. This would classify VDAs systematically, employing varying levels of scrutiny based on their risk profile and function. Alongside this sits the consideration of licensing norms for VDA service providers, with the expectation that exchanges, custodians, wallet providers, and brokers will be required to hold licenses or registration to operate within India. The review will also address the issue of data and reporting, demanding periodic or real-time reporting of transaction volumes and order-book data, likely coordinated by agencies such as the Reserve Bank of India, the Securities and Exchange Board of India (SEBI), and the Financial Intelligence Unit-India (FIU-IND).
The successful implementation of a well-defined regulatory framework for VDAs in India promises considerable benefits, fortifying user protections and bolstering systemic resilience within the financial system. A clearly articulated regulatory system will provide users with greater certainty and improved recourse, including defined responsibilities and obligations of service providers. This framework would foster greater market integrity by mitigating risks associated with leveraged trading, liquidity mismatches, and margin practices, while simultaneously strengthening safeguards against money laundering and counter-terrorism financing through enhanced information-sharing among global regulators. Moreover, clear regulations could incentivize businesses and talent to remain within India, fostering local innovation and economic growth. Ultimately, India’s response to the evolving cryptocurrency landscape could significantly impact its economic trajectory, offering a dynamic regulatory environment that facilitates responsible innovation and protects its citizens.
