India taxes cryptocurrencies. It requires crypto exchanges to verify customers, report suspicious transactions and comply with anti-money laundering laws. Enforcement agencies investigate cross-border crypto transfers, while courts have begun deciding disputes involving digital assets. Yet Parliament has never answered a more fundamental question: what exactly is a cryptocurrency in the eyes of Indian law?
That legal contradiction has come back into focus after the Reserve Bank of India (RBI) reiterated before the Parliamentary Standing Committee on Finance earlier this month that cryptocurrencies are difficult to regulate and should not be legalised. The central bank has consistently argued that private cryptocurrencies threaten monetary sovereignty, financial stability and capital controls.
But beyond reiterating a position it has consistently maintained, the RBI’s latest intervention exposes a larger gap in India’s crypto policy: the country has built an expanding regulatory framework around an asset whose legal character remains largely undefined.
No dedicated crypto law
Unlike jurisdictions such as the European Union, Singapore and Japan, which have enacted dedicated regulatory frameworks for crypto-assets, India has adopted a piecemeal approach.
Virtual digital assets (VDAs) are taxed under the Income-tax Act, brought within the Prevention of Money Laundering Act (PMLA) and increasingly scrutinised under other laws such as the Foreign Exchange Management Act (FEMA). Yet none of these statutes answers the foundational question of whether a VDA is property, goods, a security, an actionable claim or something altogether different.
Those questions formed the basis of LawBeat’s discussions with experts advising clients in this evolving area.
One area where the legal position has begun to develop is ownership itself. According to Rohan Bagai, Senior Partner at AZB & Partners, the legal position remained largely uncertain until the Madras High Court’s decision in Rhutikumari v. Zanmai Labs Pvt. Ltd. and others (2025) Labs arising out of the WazirX cyberattack. Court recognised cryptocurrency as a form of property capable of being held on trust, offering India’s clearest judicial articulation of the legal nature of crypto-assets so far. However, Bagai cautions that the ruling answers only one aspect of the debate. It does not determine whether a token would qualify as a security, commodity or goods under other statutes, leaving much of the legal framework unresolved.
Swastik Sharma, Associate with the Securities and Payments team at Spice Route Legal, agrees that VDAs continue to occupy a largely undefined legal space outside the Income-tax Act. While courts have begun recognising certain proprietary characteristics, Parliament has yet to define the legal rights represented by crypto assets or clarify how existing laws should apply across different contexts.
The Madras High Court has therefore answered one question. It has not answered them all.
Why does that legal identity matter?
The absence of a clear legal character is not merely an academic concern. It has practical consequences across multiple areas of law.
If crypto is property, can it be inherited without ambiguity? Can it be pledged as collateral? How should insolvency professionals deal with crypto holdings? What rights do consumers have against exchanges? Which regulatory framework governs cross-border transfers using stablecoins?
Bagai believes the most significant unresolved issue lies at the intersection of cryptocurrencies and FEMA.
He tells that the practical problem is that FEMA was built for a world of banks, remitters, and clearly defined transactions in traditional currency. It distinguishes between “capital account” transactions (like investments) and “current account” transactions (like payments for services), each with different rules. It was never designed with crypto in mind. So, when someone in India buys a token from an offshore platform, or uses stablecoins to move value across borders, nobody has a settled answer for basic questions – is this a permissible current account transaction? A capital account transaction that needs RBI approval? Or something FEMA doesn’t contemplate at all?
That vacuum has real consequences, Bagai stresses.
“In the absence of clear regulations, we’ve seen a wave of fintech businesses building products that use crypto, especially stablecoins, as rails for cross-border remittances, sometimes without fully grappling with whether what they’re doing complies with exchange control laws. Some of this is genuine innovation solving a real problem (cross-border payments are slow and expensive through traditional channels). But some of it is happening in a space where regulators haven’t yet said yes or no, creating risk for the businesses and for customers using them”, he says.
Sharma, on the other hand, identifies a broader concern: legal certainty itself. India’s regulatory framework simultaneously taxes crypto-assets, subjects intermediaries to anti-money laundering obligations and permits registered exchanges to operate, while stopping short of defining the legal rights represented by a VDA. Questions surrounding succession, secured lending, enforcement of security interests and long-term regulatory treatment therefore remain open.
The continuing divergence between the RBI’s opposition to legalisation and the Union government’s incremental regulatory approach also makes long-term compliance planning difficult for businesses, Sharma notes.
A framework stitched together from different laws
The fragmented approach is equally visible in day-to-day legal advice. Perhaps the clearest indication that India lacks a dedicated crypto regime is the way lawyers advise clients. There is no single statute that governs digital assets.
Bagai says the PMLA currently performs most of the regulatory work because crypto exchanges, custodians and wallet providers are required to register with the Financial Intelligence Unit and comply with know-your-customer, record-keeping and suspicious transaction reporting obligations. However, those obligations were designed around identifiable intermediaries. As decentralised finance, peer-to-peer protocols and decentralised autonomous organisations become increasingly common, the existing compliance architecture struggles to determine who exactly bears regulatory responsibility.
For Sharma, the present framework reflects an attempt to regulate an evolving technology using statutes enacted for very different purposes. While that approach has allowed regulators to respond to immediate concerns, it has also left fundamental legal questions unresolved.
“Each (law) addresses only a piece of the puzzle. None of them answers the foundational questions around the legal nature of crypto assets or establishes a coherent regulatory regime for their issuance, custody, transfer and enforcement,” Sharma says.
The RBI’s latest intervention serves as a reminder that this legislative gap remains unresolved. We must note that the evolution of India’s crypto policy reflects a far more unusual legislative journey. In most areas of law, legislatures define the subject before regulating it. India’s crypto framework has unfolded in reverse. It has regulated first and left the definition for another day.
That may have been a pragmatic response to a fast-evolving technology and an uncertain global consensus. But as courts increasingly confront disputes over ownership, cross-border transfers, consumer rights and enforcement, the cost of that ambiguity is becoming harder to ignore.
The question before Parliament is therefore no longer whether crypto should be regulated. It already is. The question is whether India can continue regulating an asset that its own law has never fully defined.