Everything About Crypto and NFT Laws in India

In recent years, cryptocurrencies (crypto) and non-fungible tokens (NFTs) have exploded in popularity in India, attracting creators, investors, and startups alike. But legal clarity hasn’t always kept pace. In India, crypto and NFTs currently reside in a complex “grey zone” — regulated in some respects (especially taxation), but lacking full statutory frameworks. In this blog, we’ll deep-dive into the legal status, regulatory challenges, tax treatment, case law, and future outlook of crypto and NFTs in India.

We’ll also summarise key points in a comparative table for ease of reference.

Table: Crypto vs NFT — Legal & Regulatory Snapshot in India

The table gives you a quick comparison. Now, let’s explore each dimension in more detail and build a narrative that helps your readers understand “the why, how, and what next.”

1. Historical & Regulatory Evolution

1.1 Early Cautions & Banking Restrictions

• As early as 2013–2017, the Reserve Bank of India (RBI) issued public caution advisories about virtual currencies, warning users of risks including fraud, volatility, and absence of recourse.

• In April 2018, RBI issued a circular prohibiting regulated financial institutions (banks, NBFCs) from providing services (e.g. bank accounts, payment support) to cryptocurrency-related businesses.

• That ban significantly constrained crypto exchanges from getting banking access.

1.2 Supreme Court Reversal / Growing Market

• In March 2020, the Supreme Court of India in Internet and Mobile Association of India (IAMAI) vs RBI struck down the RBI ban, declaring the prohibition circular unconstitutional. This revived operations of crypto exchanges.

• Since then, various crypto exchanges resumed operations, and the crypto ecosystem in India regained momentum.

1.3 Tax Framework & VDA Definition

• In the 2022 Finance Bill / Budget, the Indian government introduced an explicit tax framework for “Virtual Digital Assets (VDAs)”, including cryptocurrencies and NFTs.

• Section 2(47A) of the Income Tax Act was amended to include a definition of VDA (digital representation of value, code, token, etc., that can be stored, traded, transferred)

• With that, all gains / transfers in VDAs became taxable under the new regime.

1.4 Current Position, Clarifications & Gaps

• Today, crypto transactions (purchase, sale, holding) are permitted, though not formally “legal tender” or recognized as currency.

• The legal framework remains fragmented — several laws (IT Act, PMLA, consumer law, IP law) are applied by analogy.

• Authorities like FIU, CBDT, and nodal agencies for reporting / AML oversight are increasingly involved.

• Authors observe that the approach in Indian law is more fiscal (i.e. taxation) than regulatory at present.

2. Legal Status & Recognition

2.1 Cryptocurrency

• There is no law that bans cryptocurrencies per se.

• However, they are not legal tender; you can’t use them in place of INR for regular transactions in mainstream commerce.

• Ownership, sale, investment are permitted as digital assets.

• Banking connectivity and integration remain tricky, depending on regulatory comfort and cooperation.

• Regulatory agencies have issued warnings and prudential guidance.

2.2 NFTs

• NFTs are not explicitly addressed in Indian statutes currently.

• But via the VDA definition in tax law, NFTs are brought under the umbrella of digital assets for taxation.

• In practice, NFTs are handled via existing laws — e.g. intellectual property, IT rules, consumer protection, contract law.

• For example, an NFT platform might be considered an “intermediary” under the IT Act (Intermediary Guidelines) if it hosts user content.

Because of this patchwork approach, many legal questions (e.g. enforceability of NFT licensing terms, remedies in case of fraud) remain unsettled.

3. Taxation & Financial Treatment

Tax is one of the clearest areas where the Indian government has acted with specificity.

3.1 Definition & Scope: VDA

• The Finance Act / Income Tax regime defines Virtual Digital Asset (VDA) under Section 2(47A). This includes tokens, digital representation of value, code, etc. Notably, excludes Indian or foreign currency.

• Under this definition, both cryptocurrencies and NFTs are treated as VDAs, and all transfers / gains are subject to taxation.

3.2 Tax Rates & TDS

3.3 Reporting & Compliance

• Taxpayers must disclose VDA income in the Income Tax Return (ITR). GLI+1

• Exchanges are required to share user transaction data with tax authorities and maintain records. GLI+1

• In the case of undisclosed VDA income, penalty provisions (including up to 60% tax) may apply under general income tax laws.

3.4 Some Special Scenarios

• Mining / validating / staking rewards: The reward may be taxed as income from other sources based on fair market value at time of receipt.

• Airdrops / forks: These are typically taxed as income when received, based on FMV.

• Lending interest in crypto: Treated as income from other sources at fair market value.

• Capital loss mixing: As losses can’t be set off, aggressive trading is somewhat disincentivized under current rules.

While this tax framework is comparatively clear, many still consider it harsh: high rates, inability to deduct costs, and loss of flexibility.

4. Intellectual Property & NFT Ownership Rights

One of the key complexities with NFTs is the disconnect between the digital token and the underlying creative work’s intellectual property (IP).

4.1 Token vs Copyright

• Owning an NFT typically grants you a token (or proof of ownership) on a blockchain, not automatic copyright in the underlying digital art, music, video, etc.

• Copyright (reproduction, adaptation, distribution) remains with the original creator unless expressly assigned or licensed via contract.

• Many NFT buyers mistakenly assume they have broad usage rights; this is legally not correct unless the contract says so.

4.2 Licensing Clauses & Smart Contracts

• NFT smart contracts or platform terms must clearly specify what rights the buyer gets (e.g. view, resale, display, commercialization).

• Ambiguous or unenforceable terms can lead to disputes — courts may interpret them under contract law (Indian Contract Act) if challenged.

4.3 Enforcement & Disputes

• If someone mints NFTs of someone else’s art without permission, copyright infringement claims may follow under the Copyright Act, 1957.

• Platforms may be held liable if they facilitate infringement or fail to act on takedown requests, especially under intermediary liability frameworks of IT Act.

• Proving real-world identities, tracing ownership, cross-jurisdiction enforcement are practical challenges.

Thus, creators, buyers and platforms must carefully craft licensing terms and maintain clarity.

5. Consumer Protection, Platform Liability & Intermediary Rules

Because NFTs and crypto operate via digital platforms, legal questions around platform liability, consumer protection, and intermediary regulation arise.

5.1 IT Act & Intermediary Liability

• Under the Information Technology Act, 2000 (and rules like the IT Intermediary Guidelines), entities that host user‐generated content may qualify as “intermediaries.”

• Intermediaries have certain safe-harbour protections (if they follow due diligence, respond to takedown notices) but may lose protection if they fail to act or are complicit in wrongdoing.

• NFT marketplaces may be treated as intermediaries, hence subject to these rules (e.g., removing counterfeit listings).

5.2 Consumer Protection Act & E-Commerce Rules

• Buyers of NFTs may be protected under the Consumer Protection Act, 2019 and the Consumer Protection (E-commerce) Rules, 2020 (which cover digital goods).

• Misleading advertising, false claims, or failure to deliver promised NFTs may attract liability.

• Platforms must ensure transparent representations and risk disclosures.

5.3 AML / KYC / Reporting Obligations

• NFT marketplaces may in future be required to comply with anti-money laundering (AML) / Know Your Customer (KYC) rules, acting as reporting entities.

• Regulators may mandate them to monitor suspicious activity, submit reports to FIU, maintain audit trails.

5.4 Cross-Platform & Cross-Border Liability

• Many NFT platforms are international / decentralized. Indian courts may face challenges executing judgments or enforcing penalties across jurisdictions.

• Platforms may claim limited liability based on jurisdiction or smart contract code, making regulatory enforcement difficult.

Overall, platforms must be cautious: implementing KYC, takedown mechanisms, dispute resolution, clear terms & conditions, audits, etc.

6. Money Laundering, Fraud & Security Concerns

Crypto and NFTs are susceptible to certain risks which regulators pay close attention to.

6.1 Money Laundering & Illicit Use

• Because crypto/NFT transfers can cross borders and may be structured to hide identity, they pose risks for money laundering or terrorist financing.

• Hence, regulators want platform oversight, reporting, identification of suspicious transactions.

6.2 Fraud, Scams & Rug Pulls

• Common frauds: counterfeit NFTs (selling rights you don’t own), “pump-and-dump” schemes, phishing (fake wallets), stolen private keys.

• With weak regulatory oversight, many frauds go unremedied.

6.3 Security Breaches & Hacks

• Exchanges and platforms are frequent hacking targets. For example, in July 2024, Indian exchange WazirX was hacked, with loss of over $230 million.

• The possibility of smart contract exploits, wallet theft, and platform vulnerabilities is always present.

6.4 Concentration & Platform Dominance

• Some NFT markets are dominated by a few intermediaries, which may lead to market power concerns, anti-competitive behavior, or censorship/discrimination.

• Overconcentration may also lead to “platform risk” — if a centralized marketplace fails or changes policy, many users are affected.

Given these risks, regulators globally (and in India) are pushing for better audit norms, cybersecurity standards, and stronger oversight.

7. Recent Developments, Cases & Regulatory Moves

7.1 Cryptos as VDA & Registration with FIU

• Crypto and NFT transactions are now officially recognized under the VDA regime for tax purposes.

• Virtual Asset Service Providers (VASPs) — exchanges, custodial services — are required to register with FIU-IND (Financial Intelligence Unit).

7.2 Enforcement & Fines

• In June 2024, Binance was fined by FIU for operating without proper AML registration in India.

• This underscores that Indian authorities are increasingly confident in enforcing AML compliance.

7.3 Government Review & Policy Uncertainty

• India is reviewing its crypto position in light of global regulatory changes. A discussion paper on crypto was delayed.

• According to a recent report, India may resist fully formalizing a crypto framework, citing fears of systemic risk.

7.4 Cybersecurity Mandates

• Given growing hacking incidents, the government has proposed or mandated stricter cybersecurity audits for crypto exchanges, custodians, and intermediaries.

7.5 Notable Hacks

• The WazirX hack of July 2024 remains one of the most prominent Indian crypto breaches, causing major investor losses.

These developments show that authorities are gradually tightening oversight, especially in AML and security, though full legislative regulation is still pending.

8. Key Challenges & Legal Uncertainties

Even with tax clarity and bolstered oversight, crypto and NFTs in India face multiple unresolved challenges.

8.1 Lack of a Unified Regulatory Law

• There is no single statute that comprehensively governs crypto/NFT; existing laws are applied by analogy.

• Until a dedicated law emerges, uncertainties will remain.

8.2 Banking & Payment Integration

• Full banking integration is still constrained by risk aversion, regulatory caution, and missing formal authorisation frameworks.

8.3 Jurisdictional & Enforcement Issues

• Many NFT/crypto platforms are decentralized or offshore. Enforcing Indian judgments or regulatory measures across geographies is complex.

8.4 Contract & Licensing Disputes

• Disputes over NFT licensing, implied rights, attribution, transfer terms are largely untested in courts.

• Smart contracts may have bugs or ambiguous clauses; interpreting them legally is a challenge.

8.5 Investor Protection & Education

• Many entrants lack awareness of risks, frauds, hidden terms.

• Overhype, speculation, and “get rich quick” narratives may lead to losses.

8.6 Regulatory Overreach or Underreach

• Striking balance is tough: too lax invites risks; too strict may stifle innovation.

• Authorities must guard against overregulation that kills ecosystems, while ensuring adequate consumer safety.

9. Future Outlook & Possible Scenarios

What might the legal landscape look like in the next few years? Here are possible trends and scenarios.

9.1 Enactment of a Digital Assets Law

• India may eventually introduce a dedicated law governing crypto, NFTs, and digital assets — covering licensing of VASPs, custody norms, disclosures, penalties.

• That law might delineate boundaries between crypto-as-commodity, crypto-as-security, tokenized securities, and NFTs.

9.2 Stronger Licensing & Regulatory Oversight

• VASPs may be required to obtain licenses, meet capital/winding-up norms, audits, cybersecurity norms, consumer protection standards.

• Regulators (e.g. SEBI, RBI, finance ministry) may collaborate to decide which body regulates what.

9.3 Integration with CBDC (Digital Rupee)

• The Indian Digital Rupee (e₹) is already in pilot mode.

• Future adoption of the CBDC may influence usage of private crypto, affect settlements, act as a regulated on-ramp/off-ramp.

• Private crypto may be steered more into tokenized asset space, while CBDC handles payments.

9.4 Interoperability & Standardization

• Standards for NFT licensing, metadata, interoperability across chains may develop.

• Smart contract templates and dispute resolution frameworks may evolve.

9.5 Global Coordination

• Given cross-border nature of crypto/NFT, India will likely align with global bodies (FATF, OECD) on AML, KYC, digital asset regulation.

• International treaties, cross-border enforcement cooperation may increase.

9.6 Judicial Precedents & Case Law Development

• Indian courts may gradually hear more disputes on NFTs (licensing, enforcement, fraud). These will shape future norms.

• Landmark judgments could settle issues like buyer’s rights, platform liability, contract enforceability, and jurisdiction.

9.7 Technology & Innovation Trends

• Growth in DeFi (decentralized finance), tokenized real-world assets (property, stocks), metaverse-linked NFTs, gaming, licensing & royalties systems.

• Using on-chain royalty splits, automated revenue sharing, creative financing models may push regulatory adaptation.

In sum, the future is dynamic. Entities that adapt compliance early, build transparent systems, and educate users will be better positioned as rules crystallize.

10. Advice & Best Practices for Stakeholders

Here are some practical tips for creators, buyers, platforms, and legal professionals navigating this evolving space.

10.1 For NFT / Crypto Creators & Projects

• Use well-drafted contracts and license terms (what rights are sold, what’s retained).

• Disclose risks, maintain transparency.

• Keep good records (timestamps, wallet flow, sale receipts).

• Ensure KYC/AML compliance if you run a platform or marketplace.

• Consider working with legal counsel to design safe smart contracts.

10.2 For Buyers / Investors

• Read the fine print — owning an NFT does not always mean owning copyright.

• Use platforms that enforce KYC, have reputation.

• Maintain transaction records for tax reporting.

• Don’t rely on speculative gains; be aware of risks & volatility.

• Stay updated on regulatory changes.

10.3 For Platforms / Marketplaces

• Obtain proper registration / compliance under AML / KYC / FIU norms.

• Embed dispute resolution, escrows, verification of minters, takedown mechanisms.

• Conduct cybersecurity audits and smart contract audits.

• Disclose fees, terms, risk warnings clearly.

• Align with consumer protection and intermediary guidelines (IT Act).

10.4 For Legal Practitioners / Policy Makers

• Craft clear definitions for digital assets, token classes, licensing regimes.

• Consider modular regulation (financial side, consumer side, IP side).

• Encourage self-regulatory bodies / industry standards.

• Monitor global best practices (EU MiCA, Singapore, US SEC/Commodity rules).

• Engage with stakeholders to balance innovation and protection.

11. FAQs (Frequently Asked Questions)

Q1: Are crypto and NFTs legal in India?
Yes, they are not banned, but they are regulated under a patchwork of existing laws and taxed under the VDA regime. NFTs are not explicitly regulated, but fall under the VDA for taxation.

Q2: How is NFT income taxed?
Income from sale or transfer of an NFT is taxed at a flat 30%, and 1% TDS may be deducted on eligible transactions. You cannot generally offset expenses or carry forward losses.

Q3: If I buy an NFT, do I get copyright?
Not automatically. Copyright belongs to the original creator unless explicitly assigned. Your NFT purchase typically gives you the right to token ownership, not full reproduction rights.

Q4: What happens if a platform is hacked or goes down?
Losses may be difficult to recover. You should choose platforms with strong security audits, transparency, and insurance or escrow mechanisms.

Q5: Can India ban crypto or NFTs in future?
Yes, it’s possible. While no blanket ban exists now, the government has considered restrictive proposals, and regulatory frameworks may evolve.

Q6: Do losses in crypto / NFTs offset my other income?
Currently, losses from VDA cannot be set off against other income or carried forward.

Q7: Which authorities oversee crypto / NFTs?
Ministry of Finance, CBDT (Income Tax), RBI (policy / caution), FIU-IND (reporting / AML), possibly SEBI (if tokens classified as securities)

12. Conclusion

India’s legal approach to crypto and NFTs is in a state of evolving maturity. While the government has made significant strides in tax clarity and tightening AML controls, it has not yet enacted a unified statutory regime that fully addresses all aspects of digital assets.

For now:

• Crypto and NFT transactions are permissible but regulated mostly via existing laws.

• Taxation is perhaps the most concrete domain, via explicit VDA rules.

• Intellectual property, contract enforceability, platform liability, and cross-border enforcement remain unsettled.

• Startups, creators, investors, and platforms must adopt compliance-first mindsets, transparent practices, and legal safeguards.

• Over time, India may introduce comprehensive legislation, licensing regimes, and better integration of crypto/NFT into the financial and legal ecosystem.