The RBI[1]’s latest reported position sends a clear caution signal for India’s crypto market: VDAs, including cryptocurrencies, may be recognised for tax purposes, but that does not translate into legalisation or regulatory comfort.

• Background to the Parliamentary Committee’s review

The comments were made in the context of the Committee’s review of “A Study on Virtual Digital Assets (VDAs) and Way Forward”. In this context:

• The RBI reportedly noted that there is no uniform global approach to VDAs;
• Certain jurisdictions have prohibited cryptocurrency-related activities, while others permit such activities only under stringent regulatory frameworks; and
• The Institute of Chartered Accountants of India (“ICAI”) is understood to have supported a comprehensive legal framework for VDAs and offered assistance in developing accounting and auditing guidance for digital assets.

• Existing legal treatment of VDAs in India

While cryptocurrencies are not governed by a dedicated financial regulatory framework, VDAs have been expressly recognised for tax purposes. The VDA tax regime was originally introduced under the Income-tax Act, 1961 and has now been carried forward under the Income-tax Act, 2025, which came into force on 1^st  April 2026. In this context:

• Section 2(47A) of the Income-tax Act, 1961 defined “Virtual Digital Asset”; the definition is now reflected under the restructured Income-tax Act, 2025;
• The substantive tax treatment for income arising from the transfer of VDAs has been carried forward, including taxation at a special rate and restrictions on deductions and set-off of losses; and
• Tax deduction at source obligations on VDA transfers also continue under the re-codified framework.

Accordingly, the tax recognition of VDAs should be viewed only as a fiscal treatment of VDA transactions. It should not be read as legalisation of private cryptocurrencies or as regulatory approval for the issuance, custody, trading or use of VDAs in India.

• RBI’s regulatory approach and policy concerns

RBI’s regulatory approach appears to draw a clear distinction between digital financial innovation and private crypto-assets. While India continues to support digital payments, digital public infrastructure, fintech innovation and the Digital Rupee, private VDAs raise a separate set of policy concerns.

• The key concern is not digitisation itself, but the decentralised, borderless and, in some cases, anonymity-linked nature of private crypto-assets;
• These features may create risks relating to volatility, illicit finance, consumer protection, offshore enforcement and monetary and financial stability;
• RBI’s reported emphasis on offshore crypto entities is particularly relevant, as domestic safeguards may be difficult to enforce where trading, custody or issuance activity is conducted outside India; and
• The comparative examples of China, Qatar and Europe also suggest that jurisdictions are moving either towards prohibition or tightly controlled permission, rather than a light-touch approach.

• Practical implications for VDA models

For implementation of the VDA-related models in India, certain cautionary measure would therefore be:

• Tax recognition of VDAs should not be treated as regulatory approval or legalisation;
• Any proposed VDA activity should be assessed against the RBI’s stated concerns on financial stability, illicit finance, offshore enforcement and investor protection; and
• Market participants should therefore avoid positioning VDA offerings as legally settled products unless and until a specific regulatory framework is introduced.

From an implementation perspective, the more practical approach would be to build any VDA-linked proposal around compliance readiness, risk controls and clear disclosures, rather than assuming permissibility.

• Way Forward

Going forward, the RBI’s reported position should not be viewed as a rejection of digital financial innovation, but as an indication that any VDA-related activity in India will need to be developed within a clearer and more risk-sensitive regulatory framework.

• For clients, this presents an opportunity to design VDA-related models with compliance, transparency and risk controls built in from the outset;
• Market participants that can demonstrate strong AML/CFT controls, investor protection measures, custody safeguards and reporting readiness may be better placed if a formal framework is introduced; and
• Implementation should remain conservative, but strategically planned so that businesses are prepared for a future regulated environment without assuming present regulatory approval

Authors:

Disclaimer: 

This article is intended for informational purposes only and does not constitute a legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This article is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial / quasi-judicial authorities may not take a position contrary to the views mentioned herein.

[1] Reserve Bank of India