Cryptocurrency Trading in India and Overseas: Uncertainty Answered

We are facing a lot of common questions from our clients, saying that, Are we allowed to invest in crypto from our overseas account?

The answer is “YES”, but before that, let's describe this from a domestic and international perspective. In this analysis, we have explained about cryptocurrency, legal status in India, taxation of cryptocurrency in India, and FEMA and cross-border transactions for cryptocurrency in India.

In India, there's been a rapid growth in cryptocurrencies such as Bitcoin, Pi Coin, and other digital assets, even as the regulatory framework remains partially developed. Cryptocurrencies is not banned in India and are subject to tax they aren't considered to be a legal tender or covered by a specific law, which makes it neither fully prohibited nor fully regulated, meaning it is especially important for anyone looking to invest or use crypto to get a handle on what is and isnt acceptable - and the potential risks that come with it.

What is Cryptocurrency?

Cryptocurrency, or crypto, is a form of currency that exists digitally or virtually, designed to buy goods and services, just like any other currency out there.

These types of crypto are classified as Virtual Digital Assets (VDAs).In simple words, VDAs mean all types of crypto assets, including Non-Fungible Tokens (NFTs), tokens, and cryptocurrencies, but they will not include things like vouchers or gift cards.

Legal Status of Cryptocurrency in India:

As of 2026, cryptocurrency trading is finally legal in India. Indians are free to go ahead and buy, sell, and hold their cryptocurrencies - as long as they follow the rules, that is. But all the same, cryptocurrencies still aren't officially recognised as money, meaning they cannot be used as an official medium of exchange like the Indian Rupee.

Years ago, the Supreme Court gave its verdict in the case of Internet and Mobile Association of India vs Reserve Bank of India, which basically said the RBI's circular restricting trade of cryptos was set aside. While the Supreme Court set aside the RBI banking restriction, the judgment did not address FEMA implications. Cross-border cryptocurrency transactions continue to exist in a regulatory grey area under FEMA.

Currently, there is no single authority regulating cryptocurrencies in India in the same manner as banks or securities. Oversight is fragmented among multiple regulators:

• Reserve Bank of India (RBI): Oversees banking and payment system implications.
• Ministry of Finance: Frames taxation policy and legislative direction.
• SEBI: Involved indirectly where crypto products resemble securities or investment instruments.

Despite regulatory uncertainty, India remains one of the world's largest crypto markets, with over 15 million active users.

Taxation of Cryptocurrency in India:

India has introduced one of the world's strictest tax regimes for cryptocurrency transactions, underscoring the government's intent to monitor and control the sector rather than just shutting it down altogether.

1. Tax on Crypto Income

• A flat 30% tax applies to profits from selling or transferring your virtual currencies.
• No deductions are allowed except for the cost of acquisition.
• If you lose money on a crypto trade, transactions cannot be set off against other income.

2. Tax Deducted at Source (TDS)

• On the transfer of cryptocurrencies, 1% TDS is levied under Section 194S of the Income Tax Act
• TDS at 1% under Section 194S applies where aggregate VDA transactions exceed ₹50,000 for specified persons and ₹10,000 for others during the financial year.
• The objective is to track transactions and ensure tax compliance.

Challenges of Cryptocurrency Adoption in India:

Despite its potential, cryptocurrency adoption in India faces several practical and systemic challenges, such as security threats, money laundering risks, and many more.

FEMA and Cross-Border Cryptocurrency Transactions:

It's well worth noting that though Cryptocurrency trading in India isn't flat out banned,the Foreign Exchange Management Act, 1999 (FEMA) does not currently contain any specific provisions regarding cross-border transactions involving cryptocurrencies or other virtual digital assets (VDAs).

The Supreme Court in the Internet and Mobile Association of India v. Reserve Bank of India case knocked out the RBI circular that stopped banks from dealing with cryptocurrency exchanges; however, the judgment did not examine or clarify the permissibility of cross-border cryptocurrency transactions under FEMA.

In the absence of explicit regulatory guidance from the Reserve Bank of India (RBI), overseas cryptocurrency transactions may give rise to potential FEMA considerations, including but not limited to:

• Classification of such transactions as current account or capital account transactions
• Applicability of the Liberalised Remittance Scheme (LRS)
• Compliance with foreign exchange reporting and disclosure requirements
• Risk of regulatory scrutiny where transactions involve non-resident parties, overseas exchanges, or foreign wallets

Accordingly, cross-border cryptocurrency transactions remain subject to regulatory uncertainty and must be assessed on a case-by-case basis, taking into account the structure, purpose, and nature of the transaction.

In our opinion, until specific FEMA guidelines or RBI directions are issued, taxpayers, investors, and businesses should exercise caution and seek professional advice before undertaking cross-border cryptocurrency transactions. For expert guidance, connect with us at enquire@kdpaccountants.com .