Crypto trading in India exists in a gray zone, legal but not fully regulated.
With over 100 million active users, India is quickly becoming one of the world’s biggest hubs for digital assets. Every day, more people are exploring the potential of cryptocurrencies. For example, Bitcoin and Ethereum use both local exchanges and international platforms.
To trade crypto in India, traders need to know the rules and regulations well and understand what the gray zone is to avoid any penalties. Today, we will discuss whether crypto is legal in India by looking at the Supreme Court of India’s 2020 judgment, which lifted the ban on crypto trading.
Is Crypto Trading Legal in India?
Crypto trading in India is legal but not fully regulated. This means you can buy, sell, and hold cryptocurrencies, but there aren’t any specific laws that clearly regulate how exchanges or traders should work.
The Reserve Bank of India (RBI) does not recognize cryptocurrencies like Bitcoin or Ethereum as legal tender. Thus, you cannot use them to pay for goods or services like the Indian Rupee.
The RBI’s 2018 circular prohibited banks and financial institutions from providing services to crypto exchanges or traders.
However, the Supreme Court of India, in its March 2020 judgment, lifted the 2018 RBI ban, stating that there is no official law banning cryptocurrency. This decision allowed Indian traders to participate in crypto markets. But it is under certain conditions and with strict taxation rules introduced by the government under the Finance Bill 2022.
While trading is legal, the government introduced strict taxation through the Finance Bill 2022. This categorizes cryptocurrencies as Virtual Digital Assets (VDAs).
Note that while there is no Crypto Regulation Act in India yet, the government is monitoring this sector closely. Exchanges operating in India must comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. Offshore exchanges are not banned but face regulatory scrutiny.
For Indian traders, this means you can legally trade crypto. But be sure to comply with taxation and only use transparent, KYC-compliant platforms to avoid risks. As the government is working on a possible Digital India Act and exploring regulations under G20 guidelines, crypto trading rules could change further. Until then, crypto remains a legal but high-risk asset class in India. This is due to market volatility and the lack of investor protection from authorities like SEBI or RBI.
Why Legality is a Gray Zone
The legal status of crypto trading in India is often called a "gray zone" because there is no direct law that says crypto is legal or illegal. Instead, the government regulates crypto indirectly through taxation, banking restrictions, and compliance requirements.
Another reason for the "gray area" is that crypto is not under the control of SEBI (Securities and Exchange Board of India) or RBI. Unlike the stock market or currency trading, there is no single regulator to oversee investor protection.
In short, crypto is neither completely legal nor completely illegal. Rather, it's allowed under certain conditions. Traders must carefully follow tax rules and use trusted platforms to stay compliant.
Trading Crypto on Indian Exchanges
India hosts several reputable crypto exchanges, such as CoinDCX, WazirX, CoinSwitch Kuber, and ZebPay. With these, traders can directly buy, sell, and hold cryptocurrencies in India. These platforms support INR deposits and withdrawals, a convenient way for Indian traders.
Key Points
Account Setup: Complete KYC verification with PAN and Aadhaar.
Funding: Deposit INR via UPI, IMPS, NEFT, or bank transfer.
Trading: Spot trading of major cryptocurrencies like Bitcoin, Ethereum, and altcoins.
Features: Some offer staking, lending, and limited derivatives.
Ownership: You own the underlying digital assets, which are stored in your exchange wallet or personal crypto wallets.
Withdrawals: You can freely withdraw cryptocurrencies or convert back to INR and withdraw to your bank. Some exchanges may restrict crypto withdrawals for users who haven’t completed higher-level KYC.
Regulation & Compliance: Trading is subject to Indian regulations and RBI guidelines.
Security: Use strong passwords and 2FA, and consider transferring holdings to personal wallets for long-term storage.
Compliance and Taxation
Crypto trading profits in India are taxed under strict rules introduced by the Finance Bill 2022, which came into effect on 1 April 2022. All cryptocurrencies and NFTs are classified as Virtual Digital Assets (VDAs). Any income from their sale, trade, or transfer is subject to a flat 30% tax.
This tax applies regardless of whether you are a professional trader or a casual investor. Unlike other asset classes, no deductions are allowed (like transaction fees or exchange charges), except for the cost of acquisition (the price you paid to buy the asset).
A 1% TDS (Tax Deducted at Source) is applied to every crypto transaction under Section 194S of the Income Tax Act, effective 1 July 2022.
- TDS applies on transactions above ₹10,000 per financial year (or ₹50,000 for certain cases like high-value accounts).
- TDS is deducted even if you make a loss, which impacts frequent traders.
Traders must report all crypto holdings and transactions while filing Income Tax Returns (ITR). Non-disclosure can lead to penalties. Gifts of crypto worth over ₹50,000 are also taxed as income from other sources at 30%.
Trading Using International Brokers?
Traders can also trade crypto in India through offshore brokers. These brokers facilitate trading cryptocurrency CFDs (Contracts for Difference). Traders get to speculate on the price movement of cryptocurrencies without owning the actual asset.
Key Points
Trading Hours: Crypto CFDs are available 24/7.
Funding Alternatives: If you don’t want to use USDT, some brokers support Skrill or Neteller for deposits/withdrawals.
Regulation: Offshore brokers are not regulated by Indian authorities (RBI/SEBI), so this is a legal gray area.
Taxes: Profits from offshore trading are treated as foreign income or speculative business income and taxed accordingly in India.
Risk: Leverage (e.g., 1:100 or 1:500) can quickly amplify losses. Use proper risk management.
Platform Access: Typically via advanced platforms like MetaTrader 5 (MT5).
Funding:
- Direct INR deposits or withdrawals via Indian banks/UPI are not supported.
- Traders usually buy stablecoins like USDT on Indian exchanges (CoinDCX, WazirX, etc.) using INR and then transfer USDT to the offshore broker’s wallet address for trading.
- Alternatively, e-wallets such as Skrill or Neteller are sometimes used.
How to Start Trading With an International Broker?
Trading with international brokers lets you access global markets and advanced platforms like MetaTrader 5 (MT5). Also, it opens opportunities to trade with higher leverage. Here’s a simple step-by-step guide to get started:
Step 1: Set Up Accounts
First, create an account with an Indian crypto exchange such as CoinDCX or WazirX to deposit money in INR. Next, open a trading account with an offshore broker, like FNMarkets, that supports the MT5 platform. This account will be used to trade international crypto pairs.
Step 2: Buy USDT (Tether) or BTC with INR
Once your Indian exchange account is ready, deposit INR using UPI or a bank transfer. Then, use this balance to purchase a stablecoin like USDT (Tether) or Bitcoin (BTC). This will be used for trading with the international broker.
Step 3: Transfer USDT to the Broker’s Wallet
Log in to your FNMarkets account and locate your USDT wallet address. Transfer the USDT you bought from CoinDCX or WazirX to this address. This step funds your offshore trading account and gets it ready for live trading.
Step 4: Start Trading on MT5
Once your USDT is credited, you can start trading using the MT5 platform. You’ll be able to trade crypto CFDs such as BTC/USD or ETH/USD. You can choose to go long (buy) or short (sell) depending on market conditions. International brokers often provide high leverage (up to 1:500). This can amplify both profits and risks, so it’s important to trade carefully.
Step 5: Withdraw Profits
If you make profits from trading, you can withdraw them as USDT back to your CoinDCX or WazirX wallet. After receiving the USDT, convert it back to INR on the Indian exchange and transfer the money to your bank account.
Conclusion
Crypto trading in India is legal but regulations are still developing. While this opens doors to new opportunities, it also means traders need to stay informed and cautious.
By using trusted exchanges, keeping track of government updates, and understanding the risks involved, anyone can explore the crypto market. As the industry grows, clearer rules are likely to follow. This makes it an exciting time to be part of this digital revolution.
FAQ
Is crypto trading taxable in India?
Yes, crypto trading is taxable in India. Cryptocurrencies are treated as Virtual Digital Assets (VDAs), and any profit from their sale is taxed at a flat rate of 30%. There is no basic exemption or benefit of regular income tax slabs.
Is crypto halal in Islam?
Some Islamic finance experts consider Bitcoin and other cryptocurrencies permissible (halal), but they advise caution. Activities like excessive speculation, margin trading, or dealing in derivatives may go against Shariah principles, even if the asset itself is considered halal.
How can I avoid the 30% tax on crypto in India?
The 30% tax applies when you sell, swap, or spend your crypto. Simply buying or holding crypto is not taxed, but any profits made during disposal are taxable. There is currently no legal way to avoid this tax if you make profits.
Can I gift crypto without paying tax?
Receiving crypto as a gift is not taxed. However, if you later sell or exchange the gifted crypto, you’ll need to pay tax on any profit made, as per capital gains tax rules.
Do I pay tax when transferring crypto?
No, moving crypto between your own wallets is not a taxable event since you’re not selling or exchanging it. Still, it’s important to keep proper records of all transfers for future tax purposes.
