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Cryptocurrency & VDA Law in India

Last reviewed: 24 April 2026

India’s legal framework for cryptocurrencies and Virtual Digital Assets (VDAs) rests on four statutory pillars: tax under the Income-tax Act, anti-money-laundering under the Prevention of Money Laundering Act (PMLA), reporting under the FATCA/CRS Rules and the forthcoming OECD Crypto-Asset Reporting Framework, and foreign-exchange control under the Foreign Exchange Management Act (FEMA). There is no standalone Crypto Act. The position that emerged in the Supreme Court’s 2020 judgment in Internet and Mobile Association of India v. RBI, followed by the 2022 introduction of Section 115BBH, and culminating in the April 2026 operationalisation of Section 509 reporting, is the framework any Indian crypto participant must navigate today. This page is the entry point to Candour Legal’s analysis across that framework.

Where India Stands on Crypto as of April 2026

Cryptocurrencies are not recognised as legal tender in India. They are, however, lawful to trade, hold, and transact in — subject to the tax, AML, reporting, and foreign-exchange obligations described below. The government’s approach is regulation by taxation and disclosure rather than prohibition. The 30% flat tax under Section 115BBH (FY 2022-23 onwards), the 1% TDS under Section 194S / Section 393 of the Income-tax Act, 2025, the PMLA classification of Virtual Digital Asset Service Providers (VDASPs) as reporting entities from March 2023, and Section 509 reporting from 1 April 2026 together constitute an enforcement architecture that treats VDAs as fully visible and fully taxable assets of the Indian taxpayer.

The enforcement reality in 2026 reflects this architecture. Over 44,000 Section 148A reassessment notices have been issued to Indian crypto taxpayers focused on FY 2021-22, the Binance-FIU data-sharing arrangement has placed more than 400 Indian users under tax audit, and the Finance Act, 2025 amendments have hardened the block-assessment regime for undisclosed VDA income at 60%. From April 2027, CARF will extend this visibility internationally. The question for any crypto business or trader today is no longer whether the framework applies — it is whether disclosure is clean.

The Four Statutory Pillars

1. Tax under the Income-tax Act

Section 115BBH imposes a flat 30% tax on income from the transfer of any Virtual Digital Asset, without deduction of any expense other than cost of acquisition and without set-off of any loss against other heads of income. The Finance Act 2022 introduced the provision; the Income-tax Act, 2025 re-codified it with effect from 1 April 2026.

Section 194S / Section 393 imposes a 1% TDS on the transfer of VDAs exceeding the prescribed threshold, collected by the exchange or transferee. The TDS data feeds into the Insight Portal and AIS for every PAN-holder, which is the single largest enforcement data feed behind the current 148A wave.

Schedule VDA of the income-tax return requires transaction-level disclosure of VDA transfers. Gross-turnover-as-income is a recurring drafting issue on Department notices, discussed in detail in our analysis.

Related reading: VDA Taxation in India: The 30% Flat Rate, 1% TDS, and the Income-tax Act 2025 Transition.

2. Anti-Money-Laundering under the PMLA

Under the Ministry of Finance Notification dated 7 March 2023, persons carrying on designated VDA activities are classified as Reporting Entities under the Prevention of Money Laundering Act, 2002. The five designated activities are (a) exchange between VDAs and fiat currencies; (b) exchange between one or more forms of VDAs; (c) transfer of VDAs; (d) safekeeping or administration of VDAs; and (e) participation in and provision of financial services related to an issuer’s offer and sale of a VDA.

A Virtual Digital Asset Service Provider carrying on any of these activities must (a) register with the Financial Intelligence Unit — India (FIU-IND) as a Reporting Entity; (b) designate a Principal Officer and a Designated Director; (c) implement a KYC and AML policy; (d) file Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs) via FINgate; (e) comply with the Travel Rule for cross-border VDA transfers of INR 1,00,000 or more; and (f) maintain records for the period prescribed by the PMLA rules.

Non-registration is the most common enforcement trigger. FIU-IND’s December 2023 action against nine offshore exchanges — including show-cause notices and URL-blocking requests to MeitY — established the template for subsequent orders. Binance’s registration in August 2024 and the INR 18.82 crore compounding settlement, and Bybit’s 2025 INR 9.27 crore penalty, illustrate the cost of non-registration and the shape of a post-registration AML programme.

Related reading: FIU-IND Registration for Crypto Businesses: Who Needs It and What It Actually Is · How to Register with FIU-IND: Documents, Principal Officer, and the 2-6 Week Timeline · After FIU-IND Registration: Ongoing AML Compliance and Enforcement Lessons from Binance and Bybit.

3. Reporting under Section 509 and Rules 114F-114H

Section 509 of the Income-tax Act, 2025 (operative from 1 April 2026) requires prescribed reporting entities to furnish information on crypto-asset transactions to the Income Tax Department. Failure attracts penalty under Section 446. The Rules implementing Section 509 prescribe the format, timing, and scope of the reporting.

Rules 114F, 114G, and 114H, amended with effect from 1 January 2026, bring crypto-asset holdings and Central Bank Digital Currencies within the definition of reportable financial accounts under the FATCA-CRS framework. Custodial institutions and exchanges must apply the same due-diligence procedures to crypto accounts that they apply to securities and bank accounts.

CARF — the OECD’s Crypto-Asset Reporting Framework — extends the CRS framework to cross-jurisdictional crypto reporting. India’s signature on the CARF Multilateral Competent Authority Agreement is expected in 2026, with the first exchange of data scheduled for April 2027. CARF will close the informational asymmetry that currently exists on offshore-held crypto.

Related reading: Section 509 Crypto Reporting from April 2026 and India’s Path to the OECD CARF in 2027.

4. Foreign-exchange control under FEMA

The Reserve Bank of India has not issued a comprehensive framework for FEMA treatment of VDAs. Cross-border transfers of VDAs between Indian residents and persons resident outside India raise questions of classification as capital-account transactions, eligibility under the Liberalised Remittance Scheme, and applicability of FEMA Notification 5(R) on foreign currency accounts. The Enforcement Directorate has in several cases pursued FEMA actions alongside PMLA attachments against crypto-related proceeds. Residents making or receiving cross-border VDA transfers should assume FEMA applies and that documentation is required.

Enforcement in 2026: What the Landscape Looks Like

Section 148A reassessment notices. In April 2026, over 44,000 Section 148A notices have gone out to crypto traders, with much of the focus on FY 2021-22. Notices are generated through the Insight Portal by reconciling Section 194S TDS reports, bank credits, Schedule FA disclosures, and AIS data against filed returns. A recurring drafting error — gross turnover treated as escaped income rather than transaction-by-transaction profit — produces demand figures that do not reflect actual tax exposure.

Block assessment at 60% under Chapter XIV-B. Where a search or requisition establishes undisclosed VDA income, the Department can assess it across a block period and tax it at 60% under Section 158BA. The Finance Act, 2025 amendments strengthened this regime specifically for unreported crypto gains.

Section 68 unexplained-credit risk on P2P. Peer-to-peer transactions without documented counterparty identity are particularly vulnerable. The entire inflow can be treated as unexplained cash credit under Section 68, taxable at 60% under Section 115BBE, irrespective of actual profit. Documented counterparty KYC is the defence.

FIU-IND enforcement against non-registered offshore exchanges. Penalty orders, URL blocking, and compounding settlements are the pattern established by the Binance and Bybit orders. Offshore exchanges that have not registered with FIU-IND face continuing enforcement; Indian users of non-registered exchanges face downstream tax and AML consequences.

Related reading: Crypto Tax Notices in India: Section 148A, Block Assessment, and the 2026 Enforcement Reality.

Who Regulates What

  • Ministry of Finance / CBDT: taxation under Sections 115BBH, 194S/393, 509, and the Income-tax Act generally.
  • FIU-IND: registration, STR/CTR filings, Travel Rule, AML/CFT compliance under the PMLA.
  • Enforcement Directorate: investigation and attachment of proceeds of crime under the PMLA and foreign-exchange enforcement under FEMA.
  • Reserve Bank of India: foreign-exchange treatment and, via the Digital Rupee (CBDC) pilots, the public-sector digital currency framework; no comprehensive crypto framework issued.
  • SEBI: jurisdiction over crypto activities characterised as securities-like (for instance, token offerings with features of investment contracts) remains unsettled.
  • MeitY: URL blocking of non-registered exchanges on the request of FIU-IND, and intermediary-liability framework under the IT Rules.
  • ED and Police: criminal investigation and prosecution of crypto-related fraud, phishing, and ransom payments.

Common Compliance Mistakes We See

  1. Treating FY 2021-22 as “pre-crypto-tax” and non-reportable. The tax obligation under general principles existed before Section 115BBH was introduced; the Department is reopening those years.
  2. Maintaining no documentation of P2P counterparties. Exposes the entire inflow to Section 68 recharacterisation.
  3. Relying on “offshore wallets are invisible” assumption. Valid through March 2026; closing with FIU-IND data sharing, Section 509, and CARF from April 2027.
  4. Mixing personal and business wallets. Destroys the audit trail and creates Section 68 risk on the personal inflows.
  5. Not filing Schedule VDA despite held positions. Triggers AIS mismatches even where no sale has occurred and net income is nil.
  6. Not registering as VDASP when a business activity brings you within the five designated activities. Penalty orders, URL blocking, and directors’ personal liability.
  7. Transferring crypto to and from foreign exchanges without FEMA documentation. Attracts ED scrutiny parallel to tax scrutiny.

How Candour Legal Advises

Candour Legal advises Indian exchanges, offshore exchanges seeking Indian-market access, token issuers, Web3 developers, institutional investors, family offices, and individual high-net-worth traders across the four pillars described above. Our crypto practice sits at the intersection of the firm’s direct-tax, PMLA, and financial-regulatory work.

  • Tax matters: Section 148A response, Section 139(8A) updated returns, block-assessment defence, CIT(A) and ITAT appeals, and advisory on Schedule VDA and Schedule FA disclosure for current-year filings.
  • PMLA matters: FIU-IND registration as a VDASP, ongoing AML/KYC compliance programme design, STR/CTR filings, and representation in PMLA proceedings.
  • Advisory and structuring: VDA-business incorporation and structuring, token-issuance opinions, cross-border contracts with VDASPs, and FEMA advice on cross-border VDA flows.
  • Litigation and enforcement: representation before the Income Tax Department, FIU-IND, the Enforcement Directorate, and relevant appellate tribunals.

Frequently Asked Questions

Is cryptocurrency legal in India?
Yes. Cryptocurrencies are not legal tender but they are lawful to trade, hold, and transact in, subject to tax under Section 115BBH, TDS under Section 194S/393, Section 509 reporting from April 2026, AML compliance under the PMLA, and FEMA for cross-border transfers.

What is the tax on cryptocurrency in India?
30% flat tax under Section 115BBH on income from transfer of any Virtual Digital Asset, plus surcharge and 4% cess, plus 1% TDS under Section 194S/393 at the time of transfer. No deduction is available other than cost of acquisition; no set-off of loss against other income heads.

Do I need to register with FIU-IND if I run a crypto business?
If your business carries on any of the five designated activities under the PMLA Notification of 7 March 2023, yes. The activities are exchange between VDAs and fiat, exchange between VDAs, transfer of VDAs, custody, and financial services related to issuer’s offer and sale of a VDA.

What is Section 148A and why are crypto traders receiving these notices?
Section 148A of the Income-tax Act requires the Department to issue a show-cause notice before reopening an assessment for escaped income. Over 44,000 such notices have been issued to crypto traders on the basis of Insight Portal data reconciling Section 194S TDS against filed returns, with FY 2021-22 being the primary focus.

Can crypto income be taxed at 60% in India?
Yes, under Chapter XIV-B block-assessment provisions where income is undisclosed and recovered through search or requisition, and under Section 115BBE where inflows are recharacterised as unexplained credits under Section 68.

What changes on 1 April 2026?
Section 509 reporting becomes operative, requiring prescribed reporting entities to furnish crypto transaction data to the Income Tax Department. Rules 114F-114H amendments bringing crypto within FATCA/CRS reporting have been in force since 1 January 2026. The Income-tax Act, 2025 becomes the governing direct-tax statute.

What is CARF and when does it affect Indian taxpayers?
CARF is the OECD’s Crypto-Asset Reporting Framework, an international equivalent to the CRS for crypto. India is expected to sign the MCAA in 2026 with first exchange of data in April 2027. From that point, Indian taxpayers’ holdings on participating foreign exchanges become automatically visible to the Income Tax Department.

Read our crypto and VDA analysis

This page is analytical commentary on Indian law, not legal advice. Please see our Disclaimer and Terms of Use. For engagement enquiries, write to contact@candourlegal.com.