On 21 July, the Indian Finance Ministry clarified to the Lok Sabha that virtual digital assets (VDAs) and cryptocurrencies remain unregulated under current Indian laws.
In response to a parliamentary question on the steps taken against illegal offshore crypto exchanges.
The Ministry noted that, in the absence of a regulatory mechanism, it cannot be determined at this time whether any particular cryptoexchange is legal or prohibited.
The Finance Ministry stated “At present, crypto/virtual assets are not regulated in India. Consequently, the question of the legality or illegality of specific crypto platforms does not arise as on date.”
However, the lack of regulations does not grant a license to operate for crypto service providers, particularly those catering to Indian users.
Offshore and Domestic Crypto Exchanges Must Get Registered With FIU
Although VDAs themselves are not regulated, the government has declared that VASPs, which include overseas exchanges providing services to Indian citizens, must be registered with the FIU-IND.
This is under Prevention of Money Laundering Act (PMLA), placing crypto activity within the overall anti-money laundering (AML) regime.
The Ministry announced that the FIU is monitoring and maintaining a list of unregistered platforms, indicating that unregistered parties may face enforcement action or closer scrutiny in the future.
Taxation Efforts Continue Despite Regulatory Gap
In addition to complying with AML regulations, the Finance Ministry said all virtual digital asset transactions remain subject to taxation.
Section 194S of the Income-tax Act, brought into force by the Finance Act of 2022, requires a 1% Tax Deducted at Source (TDS) on VDA transfers.
Even in the case of offshore transactions, the tax is applicable if the income is assessable in India.
The recent development marks another step by the government to impose fiscal restraint on the rapidly growing digital asset market, despite the absence of a full-fledged regulatory structure.
Also Read: India Issues $86 Million Tax Notice To Binance, The Exchange Challenges Back
RBI Remains Guarded against Crypto Menaces
The Reserve Bank of India (RBI) remains cautious regarding digital assets.
The Finance Ministry noted that the RBI has issued repeated warnings to users, holders, and traders of digital assets about the risks involved in these assets. These risks include economic unpredictability, operational disruptions, legal ambiguities, and cybersecurity threats.
The advisories, although not specifically targeted at individual exchanges, reflect a broader institutional concern about the systemic risks posed by unregulated digital currencies to India’s financial system.
Also Read: After Apple, Google removes off-shore crypto exchanges from its Play Store in India.
Large Exchanges Move in Line with Compliance Requirements
In response to India’s shifting compliance requirements, a few of the large exchanges have shifted gears to align with FIU requirements.
The US-based Coinbase is engaged with Indian regulators, including the FIU, to seek formal sanction for re-entry into the Indian market after pausing its compliance due to earlier regulatory pushback.
Similarly, within the same month, Bybit successfully registered with the FIU after resolving past compliance issues and is now seeking a Virtual Digital Asset Service Provider (VDASP) license to resume operations fully.
Meanwhile, earlier in January, Indian exchange Mudrex resumed crypto withdrawals after completing a platform upgrade aimed at enhancing security and compliance.
These moves suggest that exchanges are increasingly prioritizing regulatory alignment to maintain access to India’s fast-growing crypto market.
Also Read: Apple App Store blocks 10 off-shore crypto exchanges in India