India taxes cryptocurrencies. It requires crypto exchanges to confirm clients, report suspicious transactions and adjust to anti-money laundering legal guidelines. Enforcement companies examine cross-border crypto transfers, whereas courts have begun deciding disputes involving digital property. But Parliament has by no means answered a extra elementary query: what precisely is a cryptocurrency within the eyes of Indian regulation?
That authorized contradiction has come again into focus after the Reserve Financial institution of India (RBI) reiterated earlier than the Parliamentary Standing Committee on Finance earlier this month that cryptocurrencies are tough to manage and may not be legalised. The central financial institution has persistently argued that non-public cryptocurrencies threaten financial sovereignty, monetary stability and capital controls.
However past reiterating a place it has persistently maintained, the RBI’s newest intervention exposes a bigger hole in India’s crypto coverage: the nation has constructed an increasing regulatory framework round an asset whose authorized character stays largely undefined.
No devoted crypto regulation
Not like jurisdictions such because the European Union, Singapore and Japan, which have enacted devoted regulatory frameworks for crypto-assets, India has adopted a piecemeal strategy.
Digital digital property (VDAs) are taxed underneath the Earnings-tax Act, introduced throughout the Prevention of Cash Laundering Act (PMLA) and more and more scrutinised underneath different legal guidelines such because the International Alternate Administration Act (FEMA). But none of those statutes solutions the foundational query of whether or not a VDA is property, items, a safety, an actionable declare or one thing altogether completely different.
These questions fashioned the idea of LawBeat’s discussions with specialists advising purchasers on this evolving space.
One space the place the authorized place has begun to develop is possession itself. In line with Rohan Bagai, Senior Associate at AZB & Companions, the authorized place remained largely unsure till the Madras Excessive Courtroom’s resolution in Rhutikumari v. Zanmai Labs Pvt. Ltd. and others (2025) Labs arising out of the WazirX cyberattack. Courtroom recognised cryptocurrency as a type of property able to being held on belief, providing India’s clearest judicial articulation of the authorized nature of crypto-assets to this point. Nonetheless, Bagai cautions that the ruling solutions just one side of the talk. It doesn’t decide whether or not a token would qualify as a safety, commodity or items underneath different statutes, leaving a lot of the authorized framework unresolved.
Swastik Sharma, Affiliate with the Securities and Funds crew at Spice Route Legal, agrees that VDAs proceed to occupy a largely undefined authorized house outdoors the Earnings-tax Act. Whereas courts have begun recognising sure proprietary traits, Parliament has but to outline the authorized rights represented by crypto property or make clear how present legal guidelines ought to apply throughout completely different contexts.
The Madras Excessive Courtroom has due to this fact answered one query. It has not answered all of them.
Why does that authorized identification matter?
The absence of a transparent authorized character just isn’t merely an instructional concern. It has sensible penalties throughout a number of areas of regulation.
If crypto is property, can or not it’s inherited with out ambiguity? Can or not it’s pledged as collateral? How ought to insolvency professionals take care of crypto holdings? What rights do shoppers have towards exchanges? Which regulatory framework governs cross-border transfers utilizing stablecoins?
Bagai believes essentially the most vital unresolved difficulty lies on the intersection of cryptocurrencies and FEMA.
He tells that the sensible drawback is that FEMA was constructed for a world of banks, remitters, and clearly outlined transactions in conventional forex. It distinguishes between “capital account” transactions (like investments) and “present account” transactions (like funds for providers), every with completely different guidelines. It was by no means designed with crypto in thoughts. So, when somebody in India buys a token from an offshore platform, or makes use of stablecoins to maneuver worth throughout borders, no one has a settled reply for fundamental questions – is that this a permissible present account transaction? A capital account transaction that wants RBI approval? Or one thing FEMA would not ponder in any respect?
That vacuum has actual penalties, Bagai stresses.
“Within the absence of clear rules, we have seen a wave of fintech companies constructing merchandise that use crypto, particularly stablecoins, as rails for cross-border remittances, generally with out absolutely grappling with whether or not what they’re doing complies with trade management legal guidelines. A few of that is real innovation fixing an actual drawback (cross-border funds are gradual and costly by conventional channels). However a few of it’s taking place in an area the place regulators have not but stated sure or no, creating danger for the companies and for patrons utilizing them”, he says.
Sharma, then again, identifies a broader concern: authorized certainty itself. India’s regulatory framework concurrently taxes crypto-assets, topics intermediaries to anti-money laundering obligations and permits registered exchanges to function, whereas stopping in need of defining the authorized rights represented by a VDA. Questions surrounding succession, secured lending, enforcement of safety pursuits and long-term regulatory therapy due to this fact stay open.
The persevering with divergence between the RBI’s opposition to legalisation and the Union authorities’s incremental regulatory strategy additionally makes long-term compliance planning tough for companies, Sharma notes.
A framework stitched collectively from completely different legal guidelines
The fragmented strategy is equally seen in day-to-day authorized recommendation. Maybe the clearest indication that India lacks a devoted crypto regime is the way in which legal professionals advise purchasers. There isn’t a single statute that governs digital property.
Bagai says the PMLA at the moment performs a lot of the regulatory work as a result of crypto exchanges, custodians and pockets suppliers are required to register with the Monetary Intelligence Unit and adjust to know-your-customer, record-keeping and suspicious transaction reporting obligations. Nonetheless, these obligations had been designed round identifiable intermediaries. As decentralised finance, peer-to-peer protocols and decentralised autonomous organisations turn into more and more frequent, the present compliance structure struggles to find out who precisely bears regulatory accountability.
For Sharma, the current framework displays an try to manage an evolving know-how utilizing statutes enacted for very completely different functions. Whereas that strategy has allowed regulators to reply to fast issues, it has additionally left elementary authorized questions unresolved.
“Every (regulation) addresses solely a bit of the puzzle. None of them solutions the foundational questions across the authorized nature of crypto property or establishes a coherent regulatory regime for his or her issuance, custody, switch and enforcement,” Sharma says.
The RBI’s newest intervention serves as a reminder that this legislative hole stays unresolved. We should notice that the evolution of India’s crypto coverage displays a much more uncommon legislative journey. In most areas of regulation, legislatures outline the topic earlier than regulating it. India’s crypto framework has unfolded in reverse. It has regulated first and left the definition for an additional day.
That will have been a realistic response to a fast-evolving know-how and an unsure world consensus. However as courts more and more confront disputes over possession, cross-border transfers, shopper rights and enforcement, the price of that ambiguity is changing into more durable to disregard.
The query earlier than Parliament is due to this fact now not whether or not crypto must be regulated. It already is. The query is whether or not India can proceed regulating an asset that its personal regulation has by no means absolutely outlined.
