1. Definition Under Law

Finance Act 2022 Sec 2(47A) introduced Virtual Digital Asset:

• Any information or code or number or token generated through cryptographic means
• Includes Crypto, NFT, DeFi tokens, Stablecoins
• Excludes Indian currency, foreign currency, Gift Cards

Once you fall under VDA, all these laws apply together.

2. Compliance Obligations - Complete Matrix

A. PMLA + FIU-IND - Most Critical Since March 2023

Vide Gazette Notification March 7, 2023, Central Govt brought VDA Service Providers under Prevention of Money Laundering Act, 2002.

Who is VDA SP? Any person doing:

1. Exchange between VDA and fiat currency
2. Exchange between one or more forms of VDA
3. Transfer of VDA
4. Safekeeping or administration of VDA or instruments enabling control
5. Participation in financial services related to issuer's offer and sale of VDA

This covers offshore or onshore - activity-based, not presence-based. If you serve Indian users, you must register.

Obligations:

• Register as Reporting Entity with FIU-IND
• Appoint Principal Officer + Designated Director
• KYC as per PMLA - Aadhaar + PAN + Video KYC + IP tracking
• Maintain records 5 years of transactions + KYC
• File Suspicious Transaction Report (STR) within 7 days, Cash Transaction Report (CTR), Cross Border Wire Transfer Report
• Travel Rule - from 2024, share originator/beneficiary info for transfers > Rs 10,000

Action: In Oct 2024 and July 2025, FIU-IND issued non-compliance notices to 15 offshore platforms including Weex and others, ordered app and URL takedowns for failure to register. Binance, KuCoin were fined and then registered.

B. Income Tax - Harshest Regime

Sec 115BBH - Flat 30% + 4% cess = 31.2% on income from transfer of VDA. No deduction except cost of acquisition. No set-off of loss from one VDA against another VDA or against other income. No carry forward.

Sec 194S - 1% TDS on transfer consideration. Buyer must deduct 1% before paying seller. For exchanges, exchange deducts. Threshold: Rs 50,000 per year for specified persons (no business income), Rs 10,000 for others. TDS appears in Form 26AS.

Schedule VDA in ITR: From AY 2023-24, you must report each VDA transaction date-wise in Schedule VDA.

Tax is deliberately strict to discourage high-frequency trading.

C. GST

As of 2026, no separate GST rate on VDA trading fees, but:

• Exchange commission / trading fee = 18% GST as OIDAR service
• If exchange is offshore without presence, under reverse charge.

D. RBI + FEMA

• Crypto not legal tender. Banks can allow trading but cannot deal in it as currency. RBI still advises banks to do enhanced due diligence.
• Cross-border VDA payment is under FEMA - not allowed as remittance under LRS for buying VDA abroad. Using credit card for Binance violates FEMA.

E. IT Act + Consumer + Advertising

• Intermediary under IT Act 2000 + IT Rules 2021 - must have Grievance Officer, Nodal Officer.
• ASCI Guidelines: Crypto ads must carry disclaimer "Crypto products are unregulated and highly risky"
• Consumer Protection: Platform is service provider - deficiency if hack due to negligence.

3. Landmark Case Laws

1. Internet and Mobile Association of India (IAMAI) vs Reserve Bank of India - Supreme Court 2020 - WRIT PETITION 528/2018
The foundational case. RBI Circular dated 6 April 2018 banned banks from providing services to crypto entities. Exchanges WazirX, Koinex, BitBNS forced to go P2P. Supreme Court struck down ban as disproportionate under Article 19(1)(g). Held RBI did not show any loss to banks, no study. Trading reopened. This is why you can trade today.

2. WazirX Hack Case - Supreme Court Writ (Criminal) 2025 - 54 users vs WazirX - Dismissed
Facts: July 2024, WazirX declared cyberattack on multisig wallet, loss $230M ~ Rs 2000 Cr. 54 users filed criminal writ seeking investigation against co-founder Nischal Shetty, Binance, custody provider Liminal.
Supreme Court dismissed on April 16, 2025, saying "In policy domain" - Court cannot lay down guidelines without legislation. Directed users to approach Union Govt or regulators. Left investors in limbo. Established that without Crypto Act, courts won't create regulatory framework

3. Madras High Court - WazirX User vs Zanmai Labs 2025 - Crypto as Property
Justice Venkatesh held: Cryptocurrencies are distinct, transferable, controlled by private keys, fitting definition of virtual digital asset. They are property under Indian law. User used WazirX platform through mobile from ordinary residence and was prevented from trading, therefore Indian courts have jurisdiction despite WazirX T&C saying Singapore arbitration. Assets situated in India are subject to local judicial protection. This overruled earlier NCDRC view.

4. NCDRC - WazirX Terms Jurisdiction Case (2023-24)
National Consumer Disputes Redressal Commission held it lacked jurisdiction because complainants signed WazirX terms agreeing to Singapore law. Also observed cryptocurrencies are neither legal tender nor permitted investment asset. Contrasted by Madras HC later - shows jurisdictional tussle.

5. BitBNS Large Investor Case - Delhi High Court 2025
Delhi HC held mere fact that large number of investors affected does not transform crypto dispute into public law rights. Cannot file PIL for platform failure. Remedy is arbitration or civil suit. Applies to all VDA SPs.

6. Google Ireland & Right Florist Cases - ITAT
Though about advertising, applied to VDA - Payments for VDA platform services not royalty, but business income. Important for offshore exchange taxation.

4. Compliance Checklist for a Trader / Exchange in India Today

If you are an Exchange / DFI building trading desk:

1. FIU-IND Registration Certificate - mandatory before operations
2. PMLA Policy + Risk Assessment + Audit
3. Real-time blockchain analytics - Chainalysis/ Crystal for tainted coins
4. TDS 194S engine - deduct 1% and file Form 26Q + issue Form 16E
5. Grievance Officer details on website + app
6. No assurance of returns in ads

If you are Retail Trader:

1. KYC on exchange - PAN linked to Aadhaar
2. Track cost of acquisition - buy price including fees. You cannot deduct gas fees separately unless included in COA.
3. Pay 30% advance tax quarterly - TDS credit is only 1%, balance 29.2% you must pay
4. File ITR-2 or ITR-3 with Schedule VDA - every trade
5. Do not offset BTC loss against ETH gain - not allowed
6. Keep 5-year records for FIU query

Penalty for Non-Compliance:

• FIU: Rs 10,000 to Rs 1 lakh per failure + app block
• Income Tax: 100% penalty for misreporting VDA + Sec 271C for TDS failure
• PMLA: Attachment of property if money laundering traced

India is moving to a full Digital Asset Act. Till then, FIU + 115BBH + 194S is the law.