India Inches Toward Crypto Exchange Regulation Under SEBI
India has been talking about crypto regulation for years. Some of that talk has now produced documents: a government discussion paper, a model law proposal, and signals that SEBI will become the primary exchange supervisor. But none of it is law yet, and anyone who has watched India's crypto policy trajectory knows the distance between a discussion paper and enforceable regulation can be measured in years, not months.
Where regulation actually stands
India does not have a dedicated cryptocurrency law. Crypto assets sit in a legal grey area, regulated indirectly through tax law, anti-money laundering rules, and occasional regulatory guidance. The Securities and Exchange Board of India (SEBI) does not currently regulate cryptocurrencies as securities, though it began monitoring crypto tokens that resemble securities from April 2025.
In June 2025, the Department of Economic Affairs (DEA) released a discussion paper that introduced the idea of classifying crypto assets as securities, commodities, or currencies, and outlined licensing requirements for exchanges. This was the first formal government document to lay out a structural approach to crypto regulation. Separately, the proposed COINS Act 2025, a model law developed with industry input, recommended the creation of a Crypto Assets Regulatory Authority (CARA) to centralise oversight currently split between SEBI and the RBI. As of early 2026, the COINS Act has not been voted on in Parliament and has no scheduled date for debate.
The Finance Ministry is now in discussions with SEBI and the RBI ahead of the Union Budget 2026-27 to finalise a regulatory framework. SEBI is expected to act as the primary supervisor for crypto exchanges, while the RBI would oversee monetary stability, cross-border flows, and capital controls. This multi-agency model is under active consideration but has not been formally adopted.
India's crypto policy track record
Scepticism about India following through on crypto regulation is not cynicism; it is pattern recognition. In 2018, the Reserve Bank of India (RBI) banned banks from servicing crypto businesses, effectively killing fiat on-ramps for the entire market. In 2020, the Supreme Court overturned that ban. In 2021, a bill to ban all private cryptocurrencies was listed in Parliament, never debated, and quietly shelved. In 2022, the government introduced a 30% tax on crypto gains plus a 1% TDS (tax deducted at source) on every transaction, which cratered trading volumes on Indian exchanges by an estimated 70-90%.
SEBI previously argued it should not be the primary crypto regulator. That debate between SEBI, RBI, and the Ministry of Finance ran for roughly three years. The shift toward SEBI taking the lead role is significant, but the institutional coordination required between these three bodies, each with different views on crypto, remains the core challenge. The DEA discussion paper does not resolve the RBI's longstanding concerns about financial stability risks, and the punitive tax regime that drove volumes offshore remains untouched.
India has the world's largest crypto user base, with approximately 119 million holders as of 2025, ranking first in the Global Crypto Adoption Index for the third consecutive year. Most trading activity migrated to offshore platforms after the 2022 tax changes. WazirX, once India's largest exchange, suffered a $230 million hack in July 2024 and has been mired in legal disputes since. CoinDCX and CoinSwitch Kuber have survived but with dramatically reduced volumes. The domestic exchange industry that regulators want to supervise is a fraction of what it was in 2021.
The enforcement picture so far
India's actual crypto enforcement has been led not by SEBI but by the Financial Intelligence Unit (FIU-IND), operating under anti-money laundering laws. In December 2023, FIU-IND issued compliance show-cause notices to nine offshore exchanges, including Binance, KuCoin, and Kraken, for operating without registering under the Prevention of Money Laundering Act. Several of those platforms were subsequently blocked in India. Binance eventually registered after paying a $2.2 million penalty; KuCoin paid $41,000. OKX shut down its India operations entirely.
In October 2025, FIU-IND issued a second wave of notices to 25 additional offshore platforms, including Paxful, BitMEX, CoinEx, and CEX.IO. Some complied; others simply geo-blocked Indian IP addresses while remaining accessible through VPNs. The 1% TDS was supposed to create a transaction-level audit trail, but enforcement against non-compliant offshore platforms has been limited. By the end of FY 2024-25, only 50 virtual digital asset service providers had registered with FIU-IND, of which just four were offshore entities.
A licensing framework is only as credible as the regulator's ability to enforce it. SEBI has real enforcement teeth in securities markets, including the power to freeze assets, bar individuals from capital markets, and impose penalties. Whether those powers translate effectively to crypto supervision, particularly against offshore platforms serving Indian users, remains unproven.
What happens from here
The most likely path is that the government uses the Union Budget 2026-27 to announce a formal regulatory structure, with SEBI designated as the primary exchange supervisor and the RBI handling monetary and systemic risk aspects. Implementation would realistically begin in late 2026 or 2027, with a transition period for existing operators. India is also aligning with the OECD's Crypto-Asset Reporting Framework (CARF), with VDA service providers expected to report user transactions by April 2027.
The discussion paper and the COINS Act model law both reflect lessons learned from other jurisdictions, including the EU's MiCA framework. But technical soundness has never been India's problem with crypto regulation. The problem has been political will, institutional coordination between SEBI, RBI, and the Ministry of Finance, and the gap between what gets proposed and what actually gets implemented. The Delhi High Court captured the current frustration in early 2025 when the RBI informed the court it would not regulate virtual digital asset platforms, prompting the judge to call the situation "unfortunate" given the risks to India's financial system. Until a bill passes Parliament, India's 119 million crypto holders operate under tax rules and AML obligations but without the regulatory clarity that a formal licensing regime would provide.
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