In India, the evolution of digital finance has changed rapidly in the last few years. And as we near 2026, the answer to the question "Is Cryptocurrency Legal in India?" has gone from an easy yes/no response to a more complicated answer involving multi-tiered regulations, high taxation, and strict compliance with them all.
Although Bitcoin and Ethereum have not been declared illegal by the Indian government, they are considered to be Virtual Digital Assets (VDAs) and are therefore subject to extensive rules and regulations. Because of this, if you are considering investing in either of these cryptocurrencies, it is very important that you familiarize yourself with these guidelines so that you can avoid any possible issues related to non-payment of taxes or compliance with the relevant laws.
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Legal Status: Currency vs. Asset
The most important thing to note regarding the legal status of cryptocurrencies is that although you may legally own and trade them, they are not recognized as legal tender.
In India, only the Sovereign Rupee (and the new Digital Rupee) has been approved for use as legal tender to discharge debts or to purchase goods. The Government and Supreme Court of India have issued formal statements reiterating that although you may use any crypto exchange or trading application in India, these digital tokens are classified legally as VDAs and not as currency.
The classification is incredibly important for the government to classify crypto as a "digital commodity" under the Finance Act rather than create a regulatory scheme for crypto under the Banking Regulation Act. It is treated as a digital commodity, like how one would treat gold or stock, although it has a much more punitive tax system than either of these commodities.
The "Taxation Trap": What Every Investor Must Know?
India's Taxation system covering crypto is one of the most oppressive in the world. So if you think you can avoid the constraints of the traditional banking system by using cryptocurrencies, think again, because the Income Tax Department has information for you: Cryptocurrencies are subject to a 30% flat tax under Section 115BBH, and this is just the tip of the iceberg.
Key Tax Provisions Before 2026
30% Flat Tax: The income received from the sale of cryptocurrency is subject to a flat tax of 30% (in addition to a 4% surcharge and cess).
No Deductions: While determining your profit from crypto, you may not deduct or receive credit for virtually any expense or allowance, other than what you paid for the crypto itself (the acquisition cost).
No Set Off: This can be a major obstacle. You may not offset a loss in one crypto (e.g., a loss in altcoins) against a gain in another crypto (e.g., bitcoin). Each transaction stands alone.
Gifted Crypto: If you receive crypto as a gift, and the amount is at least Rs. 50,000, you are responsible for taxes on the entire value.
To stay within the rules and avoid incorrectly declaring income on your VDAs (Virtual Digital Assets), it's important to understand how to Calculate Capital Gains Tax in India.
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1% TDS on Crypto (Section 194S)
In order to follow the flow of funds, the Government of India requires a 1% TDS on crypto transactions. TDS will be deducted at the time of selling or transferring the VDA.
To learn more about how the tax deduction at source (TDS) works and to learn how to calculate TDS on crypto in India, be sure to read our guide.
New 2026 Compliance & KYC Rules
Starting in January 2026, the Financial Intelligence Unit of India has endorsed its member crypto exchanges to implement Enhanced Due Diligence (EDD). No longer can users operate anonymously while engaging in trading on these exchanges, enhancing the attempt to eliminate money laundering.
New 2026 Mandatory KYC Compliance Requirements:
Geo-Tagging: All exchanges must maintain latitude/longitude Geolocation tracking for all users initiating trades.
"Liveness" Tests: KYC requirements no longer allow verification through a simple photograph. Users must be subject to an AI-assisted "live selfie" test to prevent the use of digitally manipulated photos.
PMLA Compliance: Crypto Transactions are now subject to compliance with the Prevention of Money Laundering Act in full force, and any transactions deemed suspicious will be automatically reported by the member exchanges to the Financial Intelligence Unit of India based on a specific dollar threshold.
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RBI’s Stance & The Digital Rupee (CBDC)
The Reserve Bank of India (RBI) has taken a cautious, generally doubtful view toward privately held cryptocurrencies. The reason for this perspective can be understood from looking at The Role of Reserve Bank of India in Indian Economy, which looks at how the RBI has a role to maintain the stability of the money supply and monetary system.
The RBI considers privately held cryptocurrencies a risk to the stability of the financial system and has elected instead to promote a central bank digital currency known as the e-Rupee.
The regulatory debate over privately held cryptocurrencies vs e-Rupee (CBDC) is critical for the future of India. Although the e-Rupee provides the same efficiency as the blockchain model, it lacks the speculative potential that draws many individuals to purchase Bitcoin.
Do’s and Don’ts for Indian Crypto Investors
As an investor trying to navigate a world where cryptocurrency is permitted but subject to a high level of government regulation, it is necessary to adopt a responsible approach.
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Conclusion
So, is Cryptocurrency Actually Legal in India? Yes! However, it carries a greater-than-average tax burden than any other asset class in India. The government's message is clear: You can trade cryptocurrencies freely, but all transactions will be recorded and assessed with taxes.
With the evolution of regulatory frameworks around crypto-assets in India, the best approach is to stay educated and compliant with the regulations. Consider treating cryptocurrency as a high-risk investment, and be sure to follow the FIU and Income Tax guidelines while investing in this market.
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