The single most common mistake newcomers make is assuming crypto trading is illegal in India because RBI is cautious about it. It isn't — there's a clear legal status, with clear obligations.
What's legal
Buying, holding, selling, and P2P-trading crypto is legal for Indian residents. The Supreme Court struck down RBI's 2018 banking-channel restriction in March 2020 (Internet and Mobile Association of India vs RBI). Since then, no statute has criminalised crypto ownership or trading.
What IS regulated: VDA service providers (exchanges, custodians) must register with FIU-IND under the Prevention of Money Laundering Act since March 2023. This applies to foreign exchanges serving Indians too — Binance, KuCoin, and others registered (or were temporarily blocked) in 2024.
What's taxed
Section 115BBH (Income Tax Act): a flat 30% tax on gains from VDAs, no loss offset, no indexation. Section 194S: a 1% TDS deducted at the time of every transfer. These are the most punitive tax provisions for any asset class in India — the government's way of discouraging without banning.
What's still grey
Banking-side enforcement is uneven: many banks freeze accounts on suspected crypto activity even though no law requires it, citing 'fraud risk' assessments. There's no statutory protection against this — it's a private-bank policy issue, not illegality.
Frequently asked
- Can the police arrest me for P2P-trading?
- Not for trading itself. They can investigate if your counterparty turns out to be laundering proceeds of a crime, which is why merchant selection matters.
- Do I need to declare P2P trades on my ITR?
- Yes. Crypto gains go in Schedule VDA. The TDS your counterparty deducted (or the exchange deducted) shows up in your Form 26AS.
Key takeaways
- P2P crypto trading is legal in India and has been since 2020.
- Exchanges must register with FIU-IND under PMLA since 2023.
- Heavily taxed (30% flat + 1% TDS) but not criminalised.
- Bank-side freezing is a private-policy issue, not a legal one.
