Crypto Payments in India: Are They Legal?

Key Takeaways

• Using cryptocurrency as a direct payment for goods or services is explicitly prohibited in India as of 2025.
• Trading, holding, and investing in crypto assets are legal but subject to a 30% flat tax, 1% TDS on transactions over ₹50,000, and mandatory AML/KYC compliance.
• The Reserve Bank of India (RBI) and the Ministry of Finance drive the regulatory framework; SEBI and FIU‑IND enforce AML rules.
• India is rolling out a Central Bank Digital Currency (CBDC) called the digital rupee, which the government promotes as the preferred digital payment method.
• Businesses must avoid crypto‑payment gateways, keep detailed tax records, and use registered exchanges for any crypto activity.

When it comes to cryptocurrency payments in India, the headline is clear: you cannot use Bitcoin, Ethereum, or any other digital token to settle a purchase. The rule is not a vague advisory; it is written into the country’s regulatory framework and enforced by multiple agencies. Below we unpack what “prohibited” really means, what you can still do with crypto, and how to stay on the right side of the law.

What the Law Calls Crypto Assets

India classifies every digital token under the umbrella term Virtual Digital Asset (VDA). The definition lives in Section 2(47A) of the Income Tax Act, 1961. VDAs are treated as taxable property, not as legal tender. That distinction is why the government can allow trading while banning payments.

Why Direct Payments Are Forbidden

The prohibition stems from the Reserve Bank of India (RBI)'s 2018 circular, which barred banks and regulated payment systems from facilitating crypto transactions. Although the Supreme Court of India struck down the banking ban in 2020, it left the door open for the legislature to curb crypto usage as a payment medium. In 2022 the government enacted a specific provision: crypto cannot be used to settle debts, purchase goods, or pay for services. Violations can attract penalties under the Prevention of Money Laundering Act, 2002 (PMLA) and related AML rules.

What You Can Still Do With Crypto

While payment is off‑limits, the law permits several activities, provided you follow the compliance checklist:

1. Buy, sell, or hold VDAs on exchanges that are registered with the Financial Intelligence Unit‑India (FIU‑IND).
2. Trade on domestic platforms or on foreign exchanges that have obtained FIU‑IND registration.
3. Invest in crypto funds or trusts that are approved by the Securities and Exchange Board of India (SEBI) (where applicable).

If you stay within these boxes, you are operating legally. Anything that tries to bridge crypto to a retail purchase-like a crypto‑gift card or a merchant‑integrated wallet-crosses the line.

Taxation: The Numbers You Need to Know

India’s tax regime, introduced in 2022, imposes a flat 30% tax on any income derived from VDAs, plus a 4% cess. No deductions are allowed except the cost of acquisition, meaning you can’t offset losses against gains. On top of that:

• A 1% Tax Deducted at Source (TDS) applies to each transaction exceeding ₹50,000.
• Platform fees are subject to an 18% Goods and Services Tax (GST).
• Annual filing requires a dedicated schedule-Schedule VDA-on ITR‑2 or ITR‑3 forms.

Failure to report crypto income can trigger notices, penalties, or even a rejection of your tax return. Keeping a spreadsheet of purchase dates, amounts, and exchange rates is now a must‑have for every crypto holder.

Who’s Watching and Enforcing?

The regulatory landscape is a team sport. Each agency has a distinct role:

• Reserve Bank of India (RBI) - issues policy statements warning about systemic risks and pushes the digital rupee as a safer alternative.
• Ministry of Finance - drafts tax rules and the overarching crypto‑law framework.
• Financial Intelligence Unit‑India (FIU‑IND) - registers exchanges, monitors AML compliance, and levies fines for breaches (e.g., Binance fined ₹18.82 crore in 2024).
• Securities and Exchange Board of India (SEBI) - explores a regulated market for crypto assets, emphasizing investor protection.

Because these bodies overlap, a single misstep-like operating an unregistered wallet-can attract enforcement from more than one regulator.

Digital Rupee vs. Private Crypto Payments

The RBI’s flagship project, the digital rupee, is a Central Bank Digital Currency (CBDC). Unlike private tokens, it is legal tender, fully backed by the central bank, and integrates with existing banking infrastructure. The government promotes it as a faster, cheaper way to move money while keeping a clear audit trail.

For merchants, the digital rupee offers a legal payment channel that mimics the speed of crypto without the regulatory headaches. For consumers who still want exposure to decentralized assets, the route remains: buy on a registered exchange, hold in a compliant wallet, and treat the asset as an investment-not a payment method.

Practical Steps for Businesses and Consumers

Whether you run an e‑commerce site or simply hold crypto for personal wealth, follow this checklist to stay compliant:

1. Verify exchange registration. Check the FIU‑IND portal for a valid certificate before opening an account.
2. Implement KYC/AML processes. Even if you’re only buying crypto, the exchange will need your PAN, Aadhaar, and proof of address.
3. Record every transaction. Capture date, value in INR, exchange name, and transaction hash for tax reporting.
4. Calculate taxes monthly. Apply the 30% flat rate to gains, add 1% TDS where applicable, and include GST on platform fees.
5. File Schedule VDA. Include the aggregated crypto income in your annual ITR using the designated schedule.
6. Avoid crypto‑payment gateways. Any integration that lets customers pay with Bitcoin, USDT, or similar tokens is a violation.

If you need to accept digital payments, look at the RBI’s digital rupee pilot or traditional card gateways-both are fully compliant.

Where the Landscape Is Headed

India’s stance is unlikely to shift dramatically in the short term. The government favors a state‑backed CBDC and continues to tighten AML enforcement. However, the legislative bill that could ban private crypto outright remains pending, meaning the current “investment‑only” model could stay in place for a few more years. Keep an eye on RBI announcements and any new Finance Ministry bills; they will dictate whether the regulatory gray zone narrows or widens.

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