How India’s VDA review may strengthen protections across the crypto ecosystem

Key takeaways

• With more than 100 million crypto users, India still lacks a comprehensive virtual digital asset (VDA) law. Existing rules address taxation and AML obligations, but they do not fully cover consumer protection or broader market conduct.
• Issues under discussion include the absence of unified investor-protection rules, unregulated trading practices and concerns that India’s 30% tax plus 1% TDS regime is pushing users to offshore platforms.
• Stakeholders are discussing a risk-based VDA framework, licensing requirements for exchanges and custodians, conduct-of-business standards, RWA-specific regulations and improved data and reporting systems.
• Proposed safeguards include clearer custody norms, defined insolvency procedures, stronger disclosure standards, reserve transparency and closer oversight of leverage and liquidity risks.

India is home to more than 100 million crypto users, many of whom are younger and highly tech-savvy. Yet the country still lacks clear and comprehensive regulations for virtual digital assets (VDAs).

A formal review of VDA policies is now underway. This could shift the current system, which focuses mainly on high taxes and basic Anti-Money-Laundering (AML) rules, toward a stronger framework that prioritizes investor protection.

This article outlines the VDA regulations currently in place in India as of Nov. 24, 2025. It explains what the VDA review involves, highlights the key issues under examination, summarizes the regulatory frameworks being considered and discusses the potential benefits the review could deliver.

How India currently regulates VDAs

In India, the term “VDA” is defined in the Income Tax Act through amendments introduced in 2022. It includes cryptocurrencies, non-fungible tokens (NFTs) and any other digital assets the government may specify. VDAs are not legal tender, but individuals are allowed to buy, sell and hold them.

India applies strict taxes on VDAs, including a flat 30% tax on profits from their transfer and a 1% tax deducted at source on transactions above certain limits. Losses from VDAs cannot be offset against other income.

Since March 2023, companies offering VDA services must register with the Financial Intelligence Unit-India (FIU-IND). They are also required to follow AML and Know Your Customer (KYC) rules under the Prevention of Money Laundering Act.

All VDA service providers in India, including domestic and offshore platforms that serve Indian users, are required to register with the FIU-IND as reporting entities.

However, there is still no comprehensive law to govern VDAs. This gap has created confusion and contributed to an outflow of capital and talent. India’s current approach relies on high taxation and AML requirements, but it does not yet provide full regulation or strong consumer protection.

Did you know? Regulation is one of the fastest-moving areas in global finance. Unlike traditional finance laws that often take years to change, crypto regulations can shift within months.

What India’s VDA review involves

India’s G20 presidency in 2023, along with recommendations from bodies such as the Financial Stability Board, encouraged the country to adopt international standards for crypto regulation.

In May 2025, the Supreme Court highlighted the regulatory gap and called for clearer laws. Following this, the Central Board of Direct Taxes asked stakeholders for feedback on whether a dedicated VDA law is needed.

The review would cover several key areas:

• Balancing innovation with investor protection
• Creating appropriate oversight for different types of VDAs, including trading tokens, stablecoins and tokenized assets
• Aligning with global standards while protecting India’s monetary system and preventing money laundering
• Clarifying the roles of regulators and giving businesses and users greater legal certainty.

Key issues under India’s VDA review

The ongoing review of India’s VDA framework is focused on resolving several core challenges and areas of ambiguity. The goal is to establish a clearer and more robust regulatory system. Here are the key issues under consideration:

• Investor protection: There is no unified law safeguarding crypto investors. Key risks include unclear rules on how exchanges must hold customer funds, a lack of defined procedures if an exchange fails, mis-selling of products and insufficient disclosure standards.
• Market integrity and systemic risks: Regulators are concerned about practices such as wash trading, hidden leverage and the use of offshore platforms. Unregulated stablecoins and decentralized trading could also create risks for India’s financial system.
• Money laundering: Although VDA service providers are covered by Anti-Money Laundering (AML) laws, enforcing these requirements on foreign platforms remains difficult. Decentralized finance (DeFi) also falls outside the scope of current regulations.
• Taxation: The 30% tax and 1% tax deducted at source (TDS), combined with the inability to offset losses, have pushed many users toward unregulated offshore platforms and slowed local innovation.
• Tokenized real-world assets (RWAs): India does not yet have a regulatory framework for RWAs. This gap could become significant if the tokenization of real-world assets grows in adoption.

Did you know? Not all countries tax crypto trades. Places like Portugal and Singapore charge zero tax on capital gains but may tax crypto when it is converted into goods or services.

Regulatory frameworks on the table

The review is expected to consider several regulatory models. Here are some concepts that may be discussed:

• VDA law with risk-based oversight: A dedicated VDA law could classify assets by risk and function, such as payment tokens, utility tokens, security-like tokens and asset-referenced tokens. Oversight may depend on the activity involved.
• Licensing norms for VDA service providers: Exchanges, custodians, wallet providers and brokers may be required to obtain licenses or registration. They would also need to meet governance, capital, cybersecurity, audit and asset-segregation standards.
• Conduct-of-business rules: Standardized risk disclosures, ongoing product-level reporting and clear advertising norms for VDAs may be introduced. Regulations would likely address custody practices, conflicts of interest, segregation of client assets and procedures for insolvency. Advertising rules may align with guidelines from the Advertising Standards Council of India.
• Regulation of user funds: Rules may require strict separation of user funds, regular onchain and offchain reconciliation and greater transparency around reserves. A statutory mechanism may be created to protect user assets held by VDA platforms.
• Regulation of RWAs: A separate regulatory approach may address tokenized RWA platforms and VDAs that involve high-risk payment features. These rules could include central bank involvement, capital-backing requirements, cross-border flow controls and sandbox testing.
• Data and reporting: Regulators may require periodic or real-time reporting of transaction volumes and order-book data. Agencies such as the Reserve Bank of India, the Securities and Exchange Board of India, FIU-IND and others will need to coordinate closely to ensure effective oversight of crypto activity.

A well-designed regulatory framework for VDAs in India can deliver significant benefits. It can strengthen protections for users and the financial system while supporting responsible growth in the sector.

Did you know? After Financial Action Task Force rules were adopted globally, crypto exchanges had to follow strict KYC, reporting and monitoring standards similar to those applied to banks. This resulted in major compliance upgrades, including the use of onchain analytics tools to track suspicious transactions across blockchains.

How a thoughtful VDA review could strengthen protections

A well-conceived regulatory framework for VDAs could offer several key advantages:

• Clearer safeguards for users without hindering innovation: Clearly defining the responsibilities and obligations of service providers will give users stronger rights and clearer remedies. For example, users would know in advance what happens if an exchange fails.
• Greater market integrity and stronger financial-system resilience: Regulation can improve oversight of leverage, liquidity mismatches, margin practices and reserve requirements. Effective rules for tokenized assets can also reduce the risk of problems spilling over into traditional finance.
• Reduced money-laundering risks: Licensing requirements, combined with information-sharing among global regulators, can make it harder for unregulated offshore platforms to operate. This strengthens AML, counter-terrorism financing and investor-protection measures.

A comprehensive regulatory framework can encourage businesses and developers to build and hire talent within India instead of shifting operations abroad.

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