Building with crypto in India: what's legal, what's taxed, what's smart.

A cryptocurrency is a digital token whose ownership is recorded on a shared public ledger (a blockchain) instead of a bank's private database. A stablecoin is a cryptocurrency that tries to hold a fixed value — usually 1 US dollar (USDC, USDT) — by holding real reserves against every coin issued.

For a founder, the useful distinction is not 'coin vs token' but 'volatile vs stable' and 'custodial vs self-custody'. Volatile assets (BTC, ETH) swing in price. Stablecoins do not, which makes them usable as a payment rail. Custodial means an exchange holds your keys. Self-custody means you hold them — and you carry the entire loss if you lose the seed phrase.

Crypto is not banned in India. It is also not legal tender. You can legally own, buy, sell and transfer Virtual Digital Assets (VDAs). You cannot use them to settle debts the way you use rupees.

The timeline that matters:

• 2018 — RBI circular told banks not to service crypto businesses.
• March 2020 — Supreme Court struck that circular down in Internet and Mobile Association of India v. RBI. Banking access was restored in principle.
• 2022 — Finance Act introduced the term Virtual Digital Asset and a 30% tax on gains.
• March 2023 — Crypto brought under the Prevention of Money Laundering Act (PMLA). Exchanges and custodians are Reporting Entities.
• March 2023 onwards — FIU-IND registration is mandatory for anyone offering exchange, custody, transfer or issuance services touching Indian users.

There is still no dedicated crypto law. Everything runs on the Income Tax Act, PMLA, FEMA, and the Consumer Protection Act. The absence of a specific statute is a risk, not a permission.

Indian residents can legally buy, sell and hold VDAs through platforms that have registered with FIU-IND as Reporting Entities under PMLA. Two of the better-known Indian exchanges are CoinDCX and WazirX.

Registration status can change, and the official list of registered entities is published by the Financial Intelligence Unit-India. Verify the current status on the FIU-IND portal before you deposit funds, and check whether the specific product you want (spot trading, stablecoin deposits, P2P) is covered by the registration.

Fiat on-ramps

A fiat on-ramp lets users buy crypto with regular money (INR, UPI, cards, bank transfer). For a global product, Ramp is a popular embeddable widget that handles KYC, payment method selection and token delivery without you building the plumbing. It is not an Indian exchange — it is infrastructure. If your users are Indian residents paying in INR, pair Ramp with a FIU-IND-registered exchange or off-ramp so the rupee leg stays compliant.

Wallets & social login

The biggest onboarding drop-off in Web3 is the wallet. Most users do not want to install a browser extension, copy a seed phrase, or pay gas in a token they do not own. Privy removes that friction by giving users an embedded wallet when they sign in with Google, email, Twitter or other social accounts. You can also sponsor transactions so users never see a gas fee.

This is where most founders get it wrong. Every VDA transaction is taxed on the gain, and every transfer is TDS'd on the value.

If you sell to customers outside India and want to be paid in USDC, or you pay an overseas contributor in USDT, you are in FEMA territory. FEMA does not name crypto explicitly, which means every remittance has to fit an existing rule — usually the Liberalised Remittance Scheme (LRS), currently USD 250,000 per resident per financial year, with a 20% TCS above ₹7 lakh.

• Receiving stablecoins for services rendered abroad: treat as export earnings. Convert to INR through a compliant on-ramp, get a FIRC/FIRA where possible, invoice in USD, book in INR.
• Paying overseas contractors in stablecoins: LRS caps and TCS still apply on the INR value used to buy the stablecoin.
• Peer-to-peer USDT trades through non-registered channels are the highest-risk pattern the tax and enforcement authorities are looking at. Don't.

• Register with FIU-IND if you run an exchange, wallet-as-a-service, custody, or token issuance for Indian users.
• KYC every user. AML checks. Suspicious Transaction Reports where required. Keep records for the PMLA-mandated period.
• Invoice in INR, denominate stablecoin receipts at the RBI reference rate on the day, and book them cleanly.
• Use only FIU-IND-registered on-ramps and off-ramps such as CoinDCX, WazirX, Mudrex, Bitbns, etc. Check the current registration status before onboarding funds.
• Use wallet infrastructure like Privy and fiat on-ramps like Ramp to reduce user friction, but do not use them to bypass Indian KYC, PMLA or FEMA obligations.
• Deduct and deposit 1% TDS under 194S. File Form 26QE quarterly.
• Get a written opinion from a chartered accountant before launching any tokenised product.
• Build utility, not yield. Utility tokens attached to a real product survive regulatory shifts better than promise-based tokens.

• Do not run INR/crypto trading pairs outside a registered exchange.
• Do not settle B2B invoices in crypto over banking rails — banks are instructed to flag it.
• Do not promise 'returns', 'yield', 'passive income' or 'guaranteed profits' on any token. That crosses into deposit-taking and securities regulation.
• Do not do unregistered token sales (ICO/IDO) to Indian residents. There is no ICO framework — 'not regulated' means 'exposed', not 'allowed'.
• Do not offset crypto losses against your salary, freelance income, or any other head.
• Do not accept anonymous payments above KYC thresholds.
• Do not assume a foreign incorporation shields you. If Indian residents are your users, Indian law follows the activity.

Web3 is not automatically better. It's a different set of trade-offs. Use this as a first pass.

Choose Web3 if…

• Your users are global from day one and card processors reject your category.
• Ownership, provenance or programmable rights are the product (art, music, licensing, memberships).
• You need transparent, auditable state that no single party controls.
• You have the compliance appetite for FIU-IND + 30% VDA tax + audits.

Choose Web2 if…

• Your users are mostly Indian and pay in INR.
• Your product is a service, not an asset.
• You need to iterate fast and can't carry the compliance overhead yet.
• Your team has no on-chain engineering depth.

Real risks

• Banking access can still be withdrawn quietly by individual banks even though the RBI circular is gone.
• Regulatory shift risk — a future statute could change the rules in one budget cycle.
• Treasury volatility — holding operating funds in BTC/ETH is a business risk, not a hedge.
• Smart contract and custody risk — code and key management are now part of your attack surface.
• Reputational risk — 'crypto' still carries scam associations with mainstream Indian customers.

Real opportunities

• Global payouts to contributors in minutes, not five business days.
• Tokenised memberships and access passes for creators and communities.
• Programmable royalties for artists, musicians and licensors.
• Verifiable provenance for original work — provable authorship, resale attribution.
• Direct patronage rails that don't take 20–30% platform cuts.