Between Permission and Prohibition: The Real Legal Status of Crypto in India.
(By: Ms Divyangna Malik Advocate Supreme Court of India)
Introduction The legal position of cryptocurrencies in India is often misunderstood as oscillating between prohibition and permission.
In reality, Indian law presently adopts a more nuanced stance, wherein Cryptocurrencies and other virtual currencies are not illegal by default, yet they do not qualify as legal tender.
Their use, holding, and trading are therefore permitted only within the broader framework of financial regulation, taxation, and anti–money laundering (hereinafter referred to as “AML”) law.
This position was decisively shaped by the Hon’ble Supreme Court’s ruling in the case of Internet and Mobile Association of India v. Reserve Bank of India (2020) (hereinafter referred to as “IAMAI”).
While the Court invalidated the Reserve Bank of India’s 2018 banking restriction on cryptocurrency businesses for being disproportionate, it simultaneously reaffirmed RBI’s expansive authority to regulate or even prohibit crypto-related activity where financial stability or monetary policy is at stake.
Today, virtual currencies in India are best understood as lawful but “high-risk” digital assets, regulated indirectly through banking, tax, foreign exchange, and AML regimes, rather than as currency.
RBI’s earlier prohibition circular has no legal force and cannot be relied upon by regulated entities, which has been reaffirmed vide the consolidated Master Directions issued in 2025.
In IAMAI v RBI, the Hon’ble Supreme Court examined the combined operation of three central statutes: the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, and the Payment and Settlement Systems Act, 2007.
It held that RBI’s mandate is not limited to officially recognised money, but extends to any instrument or system capable of functioning as a substitute for currency or impacting financial stability.
From this perspective, virtual currencies fall squarely within RBI’s regulatory horizon. Cryptocurrencies Are Not Legal Tender however not Illegal per se Indian law confers legal tender status only on currency issued by the sovereign through RBI and the Government of India.
The clarification in IAMAI is that lack of legal tender status does not render cryptocurrency as an unlawful asset unlawful. Numerous assets, such as securities, commodities, foreign exchange holdings, and gold are routinely traded without being legal tender.
The Supreme Court acknowledged that cryptocurrencies function as tradeable digital assets, often used for investment or speculative purposes. They can therefore be characterised as intangible property, even though they are not recognised as money.
This distinction undercuts the argument that cryptocurrency trading is inherently unlawful. Legislative Direction and Policy Signals As per the current regime, no prohibitor legislation is currently in force.
Instead, India has moved towards, the following: • Taxation of “virtual digital assets”;
• Bringing crypto-related activity within reporting and AML frameworks;
• Developing an official Central Bank Digital Currency, distinct from private cryptocurrencies. Conclusion To summarise the current Indian legal position:
• Cryptocurrencies are not legal tender, but they are not illegal per se.
• The RBI’s 2018 banking restriction has been struck down, though RBI’s regulatory authority remains fully intact.
• There is no general statutory prohibition on holding or trading private cryptocurrencies.
• Crypto transactions are generally valid under contract law, subject to compliance with taxation, AML, FEMA, and future legislation.
• Financial institutions may service crypto-related activity, but must apply strict compliance standards.
India therefore occupies a middle ground with respect to legality of virtual digital currencies by ascertaining that cryptocurrencies are legally permissible digital assets, operating under heightened regulatory scrutiny rather than sovereign recognition as money.
The views presented are personal and should not be construed as representing the official position of the management, editor, or publishers of Judicial Quest (www.judicialquest.com).
