Crypto & Virtual Digital Asset Companies in India: FIU Registration, Tax & Legal Status

India's Crypto Regulatory Landscape: Legal but Heavily Regulated

Cryptocurrencies and virtual digital assets (VDAs) occupy a distinctive regulatory position in India. They are not legal tender — meaning they cannot be used for payments like the Indian Rupee — but they are entirely legal to hold, trade, and operate businesses around. The Supreme Court of India struck down the RBI's banking ban on crypto entities in March 2020, and since then, the regulatory framework has evolved rapidly through taxation legislation, anti-money laundering directives, and institutional oversight.

As of 2026, there is no single dedicated cryptocurrency regulator in India. Instead, oversight is distributed across the Ministry of Finance, the Reserve Bank of India (RBI), the Financial Intelligence Unit (FIU-IND), the Central Board of Direct Taxes (CBDT), and potentially SEBI for securities-linked tokens. For foreign investors considering a crypto venture in India, understanding this multi-regulator framework is not optional — it is the foundation of every business decision.

In 2025, the Madras High Court recognised cryptocurrency as property, meaning it can be legally held, traded, and even attached in civil disputes. This judicial development, combined with the FIU-IND registration framework and the structured tax regime, signals that India is building a compliance-first crypto ecosystem rather than pursuing an outright ban.

What Qualifies as a Virtual Digital Asset (VDA)?

The Finance Act 2022 introduced the definition of Virtual Digital Assets under Section 2(47A) of the Income Tax Act. A VDA includes any information, code, number, or token generated through cryptographic means that provides a digital representation of value exchanged with or without consideration. This covers:

• Cryptocurrencies: Bitcoin, Ethereum, and all altcoins
• NFTs (Non-Fungible Tokens): Digital art, collectibles, and tokenised real-world assets
• DeFi tokens: Governance tokens, liquidity pool tokens, and yield instruments
• Stablecoins: USDT, USDC, and INR-pegged tokens when traded

The Central Government retains the power to exclude specific assets from this definition by notification. Gift cards, loyalty points, and mileage points are generally excluded. Understanding whether your product falls within the VDA definition is the first compliance question every crypto entrepreneur must answer.

FIU-IND Registration: The Gateway to Legal Operations

Since March 2023, every entity providing virtual digital asset services in India must register with the Financial Intelligence Unit of India (FIU-IND) as a reporting entity under the Prevention of Money Laundering Act (PMLA), 2002. This is not optional — operating without FIU registration is illegal and exposes the entity to criminal prosecution.

Who Must Register?

A Virtual Asset Service Provider (VASP) is defined as any entity that performs the following activities for another person:

• Exchanging virtual digital assets for fiat currency (INR or foreign currency)
• Exchanging one form of VDA for another
• Transferring virtual digital assets on behalf of clients
• Safekeeping or administering VDAs or instruments enabling control over them
• Providing financial services related to an issuer's offer or sale of a VDA

Registration Process and Timeline

The registration process involves creating an account on the FINnet 2.0 Gateway (FIU's digital portal), followed by comprehensive documentation submission. Required documents include:

• Certificate of incorporation and company registration documents
• Complete AML/CFT policy framework
• Ultimate Beneficial Owner (UBO) disclosure details
• KYC and Enhanced Due Diligence (EDD) procedures
• Technology infrastructure details and compliance system architecture
• Appointment of a Principal Officer and Designated Director

Approval typically takes 4 to 12 weeks depending on documentation quality. As of FY 2024-25, 49 crypto exchanges successfully registered with FIU-IND — 45 domestic platforms and 4 offshore exchanges including Binance and Coinbase.

Ongoing Compliance Obligations

Registration is just the beginning. As a reporting entity, your company must:

• Conduct customer due diligence (CDD) and maintain KYC records for all users
• Maintain transaction records for a minimum of five years
• File Suspicious Transaction Reports (STRs) with FIU-IND
• Submit Cash Transaction Reports (CTRs) for transactions exceeding INR 10 lakh
• Report cross-border wire transfers above specified thresholds

During FY 2024-25, the FIU imposed penalties totalling INR 28 crore on non-compliant crypto exchanges. In October 2025, FIU blocked access to 25 offshore platforms — including BitMEX, LBank, and Phemex — that had failed to register and comply with PMLA reporting obligations.

Tax Framework: The 30% Flat Rate and 1% TDS

India's crypto tax regime, introduced in the Union Budget 2022, is among the most straightforward — and most punitive — in the world. Two provisions govern the taxation of VDAs:

Section 115BBH: 30% Tax on VDA Income

All income from the transfer of virtual digital assets is taxed at a flat rate of 30%, plus 4% health and education cess — resulting in an effective rate of 31.2%. Critical features of this regime:

• No set-off of losses: Losses from VDA transactions cannot be set off against any other income, including other VDA gains
• No carry-forward: VDA losses cannot be carried forward to subsequent assessment years
• No deductions: No deduction is allowed except the cost of acquisition — meaning you cannot deduct trading fees, platform charges, or other operational costs
• No distinction between short-term and long-term: The 30% rate applies regardless of holding period

Section 194S: 1% TDS on VDA Transfers

Any person paying consideration to a resident for the transfer of a VDA must deduct TDS at 1%. The threshold for deduction is INR 50,000 per financial year for specified persons (exchanges, brokers) and INR 10,000 for all others. Key operational points:

• TDS applies at the time of credit or payment, whichever is earlier
• Exchanges must deduct TDS before crediting sale proceeds to the seller
• The 1% TDS creates a transaction trail — it is an advance tax payment, not an additional tax
• TDS collected must be deposited with the government by the 7th of the following month

Schedule VDA in ITR Forms

Starting FY 2025-26, all crypto transactions must be reported in a dedicated Schedule VDA section in income tax return forms. This mandatory reporting requirement, combined with exchange-level TDS collection, means the tax authority has near-complete visibility into VDA transaction activity.

Company Incorporation and Entity Structure

Most crypto exchanges and VDA platforms in India operate as private limited companies under the Companies Act, 2013. This structure offers limited liability protection, supports external investment rounds, and satisfies the governance expectations of regulators and banking partners.

Incorporation Process for a Crypto Company

The incorporation process follows the standard SPICe+ route through the MCA portal. However, crypto companies face additional practical considerations:

• Object clause: The Memorandum of Association should include VDA-related activities (trading, custody, exchange services) as primary business objects
• Registered office: A physical registered office address is essential — virtual offices create problems with bank account opening and GST registration
• Resident director: At least one director must have stayed in India for 182+ days in the financial year
• Digital Signature Certificate (DSC): Required for all directors for MCA filings

Banking Challenges

Despite the Supreme Court lifting the banking ban, crypto companies in India continue to face difficulties opening and maintaining bank accounts. Banks conduct enhanced due diligence on VDA businesses, and some private banks remain reluctant to onboard crypto clients. Establishing a banking relationship early — before scaling operations — is a practical necessity.

FDI in Crypto: Navigating the Grey Zone

India's FDI policy does not explicitly address crypto or VDA businesses as a separate sector. This creates both opportunity and uncertainty for foreign investors. The IT/Software sector permits 100% FDI under the automatic route, and most crypto platforms classify their operations under this category.

However, foreign investors must be aware of several FEMA and FDI considerations:

• FDI pricing guidelines: Share allotments to foreign investors must comply with FEMA pricing norms — shares cannot be issued below fair market value determined by a SEBI-registered merchant banker
• FC-GPR filing: Must be submitted within 30 days of share allotment to non-residents
• FLA Return: Annual filing due by July 15 for companies with foreign investment
• Press Note 3 restrictions: Investors from countries sharing a land border with India (China, Pakistan, Bangladesh, Myanmar, Nepal, Bhutan, Afghanistan) require government approval regardless of sector

For a deeper understanding of FDI route options, see our complete guide to FDI in India and our automatic route vs government approval comparison.

GST Implications for Crypto Platforms

Starting July 2025, GST applies to crypto platform service fees at the standard rate of 18%. This is levied on the exchange's commission or service charge — not directly on trading profits. However, the cascading effect on operational costs is significant:

• Exchange trading fees attract 18% GST
• Technology service fees for platform development attract 18% GST
• Advisory and consulting services related to VDA attract 18% GST
• Input tax credit can be claimed on business inputs, but the restrictions under Section 115BBH on deductions create mismatches

GST registration is mandatory once aggregate turnover exceeds INR 20 lakh (INR 10 lakh for special category states). For crypto exchanges processing significant volumes, this threshold is crossed almost immediately.

AML/CFT Compliance Framework

The PMLA compliance framework for VDA companies mirrors banking-level requirements. Your company must establish:

• Customer Due Diligence (CDD): Verify identity of all users using government-issued ID, PAN card, and address proof
• Enhanced Due Diligence (EDD): Additional scrutiny for high-risk customers, politically exposed persons (PEPs), and large-value transactions
• Transaction monitoring: Automated systems to flag suspicious patterns — structuring, rapid-fire trades, unusual volumes
• Record keeping: All KYC records and transaction data must be maintained for five years from the date of cessation of the business relationship
• Suspicious Transaction Reports (STRs): Must be filed with FIU-IND within 7 days of suspicion arising
• Principal Officer: A designated senior official responsible for FIU communications and STR filings

The compliance infrastructure required — including KYC systems, transaction monitoring software, and trained compliance personnel — typically costs INR 25 lakh to INR 1 crore annually for a mid-sized exchange.

Penalties and Enforcement

Non-compliance with India's crypto regulations carries severe consequences:

During FY 2024-25, the Enforcement Directorate conducted multiple searches on crypto entities suspected of facilitating money laundering through VDA platforms. The regulatory posture is unmistakable: compliance is not a suggestion.

Accounting and Financial Reporting for Crypto Companies

Crypto companies in India face unique accounting challenges. As of 2026, there is no specific Indian Accounting Standard (Ind AS) for virtual digital assets. Most companies classify VDA holdings as intangible assets under Ind AS 38, though some classify exchange-held crypto as inventory. The Institute of Chartered Accountants of India (ICAI) has issued guidance notes, but the treatment remains subject to auditor interpretation.

For companies holding VDAs on their balance sheet, valuation at year-end is critical for tax and audit purposes. Fair value measurement requires reliable market data, which can be challenging for illiquid tokens. The statutory auditor will need to verify VDA balances, which may require access to blockchain explorers, wallet addresses, and exchange statements — a relatively new competency for many Indian audit firms.

Regulatory Outlook: What Is Coming Next

India's crypto regulatory framework remains in active development. Several significant regulatory developments are expected in 2026-2027 that will reshape the operating environment for VDA companies:

Comprehensive Crypto Legislation

The Ministry of Finance has been working on a comprehensive cryptocurrency bill that would establish a dedicated regulatory framework beyond the current patchwork of tax provisions and PMLA obligations. Industry consultations have focused on licensing requirements for exchanges, custody standards, investor protection mechanisms, and potential classification of different token types. While the timeline remains uncertain, the direction is clear: India is moving toward a structured regulatory regime rather than maintaining the current ambiguous status.

SEBI's Role in Token Classification

The Securities and Exchange Board of India (SEBI) is expected to play a role in regulating security tokens and investment-linked digital assets. Tokens that function like securities — offering returns, representing equity, or providing revenue-sharing rights — may come under SEBI regulatory purview, requiring additional compliance layers beyond FIU registration.

RBI's Digital Rupee (e-Rupee)

The RBI's Central Bank Digital Currency (CBDC) pilot — the e-Rupee — continues to expand. While the e-Rupee is not a cryptocurrency, its growth could influence regulatory attitudes toward private digital assets. Companies operating in the VDA space should monitor CBDC developments, as they may create both competitive pressure and integration opportunities.

International Regulatory Coordination

India's G20 presidency accelerated global crypto regulatory coordination. The country supports the Financial Stability Board's (FSB) recommendations for crypto asset regulation and the OECD's Crypto-Asset Reporting Framework (CARF), which India has committed to implementing. CARF will require crypto exchanges to report cross-border transaction data to tax authorities automatically — adding another compliance layer for exchanges operating in India.

Practical Roadmap: Setting Up a Crypto Company in India

Step 1: Incorporate the Company

Register a private limited company through SPICe+ with VDA-related business objects. Budget INR 15,000 to INR 25,000 for incorporation costs. Timeline: 7-15 days.

Step 2: Obtain PAN, TAN, and GST Registration

PAN and TAN are issued automatically with incorporation. Apply for GST registration separately. You will also need a Tax Deduction Account Number for TDS compliance under Section 194S.

Step 3: Register with FIU-IND

Create a FINnet 2.0 Gateway account, prepare all AML/CFT documentation, appoint a Principal Officer and Designated Director, and submit your application. Timeline: 4-12 weeks for approval.

Step 4: Establish Banking Relationships

Approach multiple banks simultaneously. Prepare a comprehensive business plan, AML policy, and compliance framework documentation to support your account opening application.

Step 5: Build Compliance Infrastructure

Implement KYC/AML systems, transaction monitoring, STR filing mechanisms, and TDS deduction automation. This is typically the largest upfront cost after technology development.

Step 6: Ongoing Compliance

Monthly TDS deposits, quarterly GST returns, annual income tax filing, FIU reporting, and annual ROC filings (MGT-7 and AOC-4). Budget INR 3,00,000 to INR 10,00,000 annually for professional compliance fees.

Key Takeaways

• Crypto is legal but heavily taxed in India — 30% flat tax on gains with no loss set-off, plus 1% TDS on every transfer, creates a significant tax burden that must be factored into business models
• FIU-IND registration is mandatory for all VASPs, with 49 exchanges already registered and aggressive enforcement against non-compliant platforms including blocking access to 25 offshore exchanges
• PMLA compliance is banking-grade — KYC, transaction monitoring, STR filing, and five-year record retention are non-negotiable requirements with criminal penalties for violations
• FDI is possible under the automatic route for IT/Software classification, but FEMA pricing norms, FC-GPR filings, and Press Note 3 restrictions apply
• Budget INR 50 lakh to INR 2 crore for first-year setup including incorporation, technology, compliance infrastructure, and professional fees — before marketing or customer acquisition costs

For assistance with company incorporation and regulatory compliance for your crypto venture, explore our private limited company registration and FEMA/RBI compliance services.