India Crypto Regulation 2026: FIU-IND, 30% Tax & PMLA Compliance

India's crypto taxation regime, introduced via Finance Act 2022 and effective from April 1, 2022, is one of the strictest globally. Key features that distinguish it from most other jurisdictions:

• 30% flat tax: All income from transfer of VDAs is taxed at 30% (plus applicable surcharge and cess — effective rate can reach 42.7% for high-income individuals). This applies regardless of whether the asset was held for one day or ten years — there is no long-term capital gains benefit.
• No loss set-off: Losses from one VDA cannot be offset against gains from another VDA, nor against any other income. If you lose ₹5 lakh on Bitcoin but gain ₹5 lakh on Ethereum, you pay 30% tax on the Ethereum gain with no relief for the Bitcoin loss.
• 1% TDS (Section 194S): A 1% Tax Deducted at Source applies on all VDA transfers above ₹10,000 per transaction (₹50,000 for specified persons like HUFs and individuals below the audit threshold). The buyer or crypto exchange must deduct and remit this TDS. This creates significant cash flow friction.
• Gift tax: VDAs received as gifts above ₹50,000 in value are taxable as income in the hands of the recipient, except from specified relatives.
• Cost of acquisition only: The only allowable deduction when computing VDA transfer income is the cost of acquisition. Mining costs and transaction fees are generally not deductible.

For crypto businesses, VDA trading income is taxed as business income (if trading is the business activity), still subject to slab rates for individuals or flat corporate tax rates. The 30% rate applies specifically to VDA "transfer" gains under the special provision.

Following the March 2023 PMLA notification, all entities providing services related to virtual assets must register with FIU-IND as Reporting Entities. This includes:

• Crypto exchanges (spot, derivatives, P2P)
• OTC desks and crypto brokers
• Crypto custodians and wallet providers
• NFT marketplaces (where NFTs are used for investment/payment purposes)
• DeFi service providers with identifiable operators
• Crypto payment processors

Foreign platforms serving Indian users are also required to register — as evidenced by FIU-IND's January 2024 notices to Binance, Kraken, KuCoin, Huobi, Gate.io and others for non-compliance, resulting in temporary blocking of their websites in India.

Once registered, VASPs must maintain a Principal Officer (the designated individual responsible for PMLA compliance), implement Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) procedures, conduct ongoing transaction monitoring, and report Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs) to FIU-IND.

Record-keeping obligations require VASPs to maintain transaction records for five years. Travel Rule compliance (FATF Recommendation 16) — transmission of originator/beneficiary information on crypto transfers — is increasingly expected though India has not yet formally enacted specific Travel Rule legislation as of 2026.

The Reserve Bank of India's relationship with crypto has been turbulent. In April 2018, the RBI issued a circular prohibiting banks and regulated financial institutions from providing services to crypto businesses — effectively cutting exchanges off from banking. This led to a dramatic collapse in Indian crypto trading volume.

In March 2020, the Supreme Court of India struck down the RBI circular in the Internet and Mobile Association of India vs RBI case, ruling it unconstitutional due to its disproportionate impact. Crypto trading resumed and the market saw rapid growth through 2021.

Despite the Supreme Court ruling, the RBI has continued to express strong reservations. In its 2023 and 2024 reports, the RBI repeated calls for a global framework to address crypto risks and reiterated concerns about macro-financial stability. Banks in India remain cautious — many still informally restrict crypto-related transactions, creating banking access challenges for exchanges.

The RBI launched the Digital Rupee (e-INR) CBDC in a retail pilot in December 2022, which has been progressively expanded. The RBI views its CBDC as a safe, government-backed alternative to private cryptocurrencies.

A legally compliant crypto business in India in 2026 must meet the following minimum requirements:

• FIU-IND registration as a VASP/Reporting Entity under PMLA
• AML/CFT compliance program with a designated Principal Officer
• KYC infrastructure — full Aadhaar/PAN-linked KYC for Indian users
• TDS system — 1% TDS collection, deduction, and quarterly filing (Form 26QE)
• GST registration — crypto exchange services attract 18% GST on service fees
• Corporate tax compliance — 30% VDA tax applies even to business entities on VDA trading profits

Banking access remains the primary operational challenge. Indian crypto businesses typically maintain accounts with smaller cooperative banks or neo-banks that are more crypto-tolerant, use UPI payment rails where possible, or rely on peer-to-peer mechanisms. Several large Indian exchanges (WazirX, CoinDCX, ZebPay) use a combination of nodal accounts and payment aggregator arrangements.

Businesses targeting Indian crypto users face a structural dilemma: India's tax and regulatory burden is significant, but offshore-only structures now face FIU-IND registration requirements too. The optimal structure depends on business model.