Crypto & Virtual Digital Assets in India

What are Virtual Digital Assets (VDAs)?

VDAs are digital representations of value that can be traded or transferred. This includes:

  • Cryptocurrencies: Bitcoin, Ethereum, Solana
  • Tokens: Utility tokens, NFTs, Stablecoins
  • DeFi Assets: Governance tokens, liquidity provider tokens

India’s crypto market: ~$6.5 billion (2024), ~15-20 million investors.

RBI vs SEBI Jurisdiction

RBI’s Stance (2020-2024)

  • April 2018: RBI banned banks from dealing with crypto (overturned by Supreme Court, March 2020)
  • May 2023: RBI expressed “serious concerns” about crypto
  • CBDC Pilot: Digital Rupee pilot launched (2022)

SEBI’s Role

  • October 2023: SEBI granted regulatory powers over crypto
  • Crypto Asset Classification: Securities or commodities determination pending
  • Investor Protection: SEBI to regulate as and when notified

Tax Framework (2024)

Income Tax Provisions

  • 30% Tax: On gains from VDA transfers (Section 115BBH)
  • 1% TDS: On payments for VDA above ₹10,000 (Section 194S)
  • No Deduction: Losses cannot be set off against other income
  • Gift Tax: VDA gifts taxable as income

Tax Calculation Example

1
2
3
4

Investment: ₹1,00,000 → Sold for ₹2,00,000
Gain: ₹1,00,000
Tax @30%: ₹30,000 (plus surcharge if applicable)
Net After Tax: ₹70,000

Regulatory Landscape

What’s Allowed (2024)

  • Buying/selling VDAs on registered exchanges
  • Holding VDAs in self-custody wallets
  • Crypto as payment (not legally recognized)
  • CBDC (RBI’s digital rupee)

What’s Prohibited

  • Crypto as legal tender
  • Unregistered exchange operations
  • Anonymous transactions (PMLA compliance required)
  • Advertising crypto to retail investors (by exchanges)

How Crypto Exchanges Work

Indian Exchanges (SEBI-Registered)

  • WazirX: Largest by volume (acquired by Binance)
  • CoinDCX: Institutional focus
  • ZebPay: Oldest Indian exchange
  • Unocoin: Bitcoin-only specialist

Process

  1. KYC: Mandatory Aadhaar, PAN verification
  2. Bank Link: Add bank account for INR transfers
  3. Buy/Sell: Market orders, limit orders
  4. Storage: Exchange wallet or self-custody

Consumer Rights & Risks

Investor Protections (Limited)

  • KYC Compliance: Exchanges must verify identity
  • SUSPICIOUS Transaction Reports: AML monitoring
  • Grievance Redressal: Exchange-level + Consumer Court

Major Risks

  1. Price Volatility: 50%+ swings in days
  2. Hacking Risk: Exchange breaches (Mt. Gox, WazirX 2024)
  3. No Legal Recourse: Crypto transactions not legally enforceable
  4. Scams: Ponzi schemes, rug pulls, fake exchanges
  5. Tax Complexity: Multiple forms, audit requirements

Safe Practices

  1. Use SEBI-Registered Exchanges Only
  2. Enable 2FA: Prefer hardware wallets for large holdings
  3. Self-Custody: Consider cold wallets for long-term holding
  4. Start Small: Allocate only what you can afford to lose
  5. Document Everything: For tax compliance

Reporting Issues

Prime References

This 101 guide is part of CashlessConsumer’s fintech education initiative. Last updated: March 2026.