From "Ban It All" to "Regulate Smart": Why India's Crypto Rules Are Finally Shifting

Khushi V Rangdhol Jun 08, 2025 17:59

India shifts from banning crypto to smart regulation, inspired by EU's MiCA. New rules aim for clarity, but high taxes persist. A rules-based boom may follow.

Five years ago New Delhi seemed determined to snuff out crypto. In April 2018 the Reserve Bank of India told banks to sever ties with exchanges, throttling fiat liquidity overnight. The Supreme Court reversed that order in March 2020, calling the ban “disproportionate,” and trading roared back—only to be hit in the 2022 Union Budget with the now-famous 30 percent capital-gains tax plus a 1 percent “TDS” deduction on every sale, a combination that halved on-shore volumes within months.

The government’s own alternative soon followed. A retail pilot of the digital rupee (e₹) began on 1 December 2022 and has since spread to seventeen banks. Meanwhile, regulators have grown more comfortable with public consultation: on 7 May 2025 the RBI adopted a rule-making framework that makes draft regulations and impact analyses mandatory, and the Finance Ministry is preparing a discussion paper on crypto assets for release in June 2025. That paper is expected to lean heavily on the European Union’s Markets in Crypto-Assets (MiCA) rulebook, which the policy establishment has studied for more than a year.

What MiCA offers India

Europe’s law does four things that speak directly to India’s pain points. First, it gives every exchange or custodian a CASP licence backed by €50 000–€150 000 in regulatory capital, a neat yardstick India could translate into roughly ₹12 crore and hand over to SEBI for supervision. Second, it sorts tokens into clear buckets—payment, utility and “asset-referenced” stablecoins—removing the ambiguity that still fuels the “Is Bitcoin legal?” debate. Third, it demands proof-of-reserves, white-paper disclosures and compensation schemes, consumer shields that might have softened the 2024 WazirX freeze. Finally, MiCA outlaws insider trading, wash trades and other crypto-native abuses, giving prosecutors purpose-built tools instead of forcing them to adapt 1990s securities law. 

The inevitable Indian twists

New Delhi will not copy the EU line for line. Senior officials have already signalled that the 30 percent tax and 1 percent TDS are staying because they raise revenue and serve as a throttle on speculative frenzy. The RBI, wary of “digital-dollarisation,” wants extra reserve fat on any rupee-pegged stablecoin so the sovereign e₹ remains the path of least resistance. And unless the TDS bite eases, founders will keep moving cap tables to Dubai and Singapore; Indian media track a steady trickle of Web3 start-ups re-domiciling for VARA licences and zero tax.

Politically, the coming bill will have to placate three regulators at once: the RBI on payments and systemic risk, SEBI on market conduct (it has already volunteered for the role) and the Financial Intelligence Unit on anti-money-laundering compliance. Expect a MiCA-style skeleton with “masala” layers: high taxes, strict rupee-stablecoin rules and multi-agency oversight.

Likely timetable

The Finance Ministry’s discussion paper should open for public comment in the second half of 2025; a full-fledged Virtual Digital Assets Bill is pencilled in for the 2026 Budget session. If Parliament signs off, a one-year licensing window would open in 2027. Platforms that ignore it would face geo-blocking or an RBI choke-hold on their banking rails.

How to stay ahead

• Traders should assume end-to-end KYC and on-chain-to-bank traceability are coming and keep pristine tax records.
  
  

• Start-ups can save time by mapping their token design to MiCA’s categories now and segregating customer assets.
  
  

• Investors would do well to stick with exchanges that promise an early SEBI licence push; others may not survive the transition.
  
  

Bottom line

India no longer seems bent on banning crypto; it wants to domesticate it. By grafting MiCA’s clear guard-rails onto local realities—high taxes, a sovereign CBDC and turf shared among three watchdogs—New Delhi could swap uncertainty for a rules-based boom. For builders and holders alike, clarity can’t come soon enough.

• crypto