Crypto Regulation in India: A Fragmented Framework

India's regulatory approach to virtual digital assets is causing tension as existing laws are being stretched to cover new technologies. The country has enacted a detailed regime for taxing crypto-assets, but it still lacks a comprehensive statute defining their legal status or the conditions under which they may operate.

The Income-tax Act requires taxpayers to disclose transactions and pay a flat 30% tax on gains, while the Prevention of Money Laundering Act (PMLA) targets the proceeds of crime. However, these laws were enacted for different purposes and are not equipped to regulate blockchain-based assets or decentralised digital payments.

The Enforcement Directorate's recent investigation into Bengaluru-based cryptocurrency payment companies has highlighted this issue. The entities allegedly facilitated cross-border settlements worth over ₹2,500 crore through 'stablecoins' outside the banking channels recognised under the Foreign Exchange Management Act, 1999 (FEMA). Bank accounts containing approximately ₹6 crore have been frozen since investigations commenced.

The incident exposes the growing tension between statutes that were enacted to address different legislative concerns but are now expected to regulate the same technological phenomenon. This has led to fragmented legislation, making it difficult for businesses to comply with legal requirements and creating commercial risks.