For years, India's crypto industry operated in a regulatory grey zone — taxed heavily but with unclear rules on everything from token classification to exchange licensing. That changed significantly when SEBI took on formal oversight of crypto assets in April 2025. Here is what the framework looks like and what it means for you.
The Dual Regulator Structure
India now has two regulators covering crypto:
FIU-IND (Financial Intelligence Unit): Handles Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) compliance for all Virtual Asset Service Providers. All exchanges, wallet providers, and brokers must be FIU-registered. Non-registration is illegal.
SEBI (Securities and Exchange Board of India): Oversees crypto assets that qualify as securities, investor protection standards, and exchange conduct norms for crypto platforms. SEBI's role is newer and still being defined, but it brings institutional-grade oversight to the sector.
SEBI's Draft Token Classification Framework
SEBI's most consequential proposal is the classification of tokens into two categories:
Utility tokens: Tokens whose value derives from their use within a specific platform or ecosystem. These would face lighter regulatory requirements — primarily disclosure obligations and listing standards.
Security tokens: Tokens that represent an investment contract — where buyers expect profits primarily from others' efforts. These would be subject to the full Securities Contracts (Regulation) Act framework, including prospectus requirements, investor suitability standards, and exchange listing rules similar to equity shares.
Bitcoin and Ethereum are widely expected to be classified as utility/commodity assets rather than securities. Many altcoins, particularly those with founding teams promising returns, may face security classification.
Exchange Licensing Requirements
SEBI's framework proposes formal licensing for crypto exchanges operating in India, with requirements covering:
- Minimum net worth thresholds (likely ₹50–100 crore for larger platforms)
- Segregation of client funds from company assets
- Proof-of-reserves reporting on a regular basis
- Mandatory insurance or compensation fund contributions
- Customer grievance redressal mechanisms
These requirements would bring Indian crypto exchanges closer to the standards applied to stock brokers — a significant upgrade from the current environment.
Advertising Rules Already in Force
SEBI and ASCI (Advertising Standards Council of India) rules require all crypto advertisements to carry mandatory risk warnings. Celebrity endorsements of specific tokens are restricted. The days of cricketers promoting unregulated altcoins without disclosure are over.
What the CARF Framework Adds
From April 2027, India will implement the OECD's Crypto-Asset Reporting Framework. Indian exchanges will be required to report account holder information to the Income Tax Department, which will share it with tax authorities in other participating countries. Reciprocally, Indian tax authorities will receive data about Indian residents' holdings on foreign exchanges.
This creates near-complete tax transparency. Any Indian investor holding crypto on overseas platforms and not declaring it on their ITR faces serious legal risk from 2027 onwards.
How to Stay Compliant Today
- Use only FIU-registered Indian exchanges
- Complete and maintain up-to-date KYC on all platforms
- Report all crypto income in Schedule VDA of your ITR
- Keep records of every transaction with INR valuations
- Declare foreign crypto holdings in your Foreign Assets schedule if applicable