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CRYPTOCURRENCY AND CORPORATE INVESTMENTS: REGULATORY CHALLENGES IN INDIA

Publications, Research paper

ABSTRACT:

The swift expansion of cryptocurrencies has notably influenced financial systems across the globe, creating new opportunities for corporate investment strategies. Within the Indian context, this digital evolution brings forth specific regulatory hurdles, particularly regarding the involvement of corporate entities in cryptocurrency trading and assets. This study explores the complex legal framework surrounding the use of digital currencies in India, assessing its impact on corporate-level financial decisions. It also examines current laws, court interpretations, and taxation concerns, and emphasizes the importance of a regulatory balance—promoting technological advancement while safeguarding economic stability and investor interests.

KEYWORDS:

Digital currency, corporate finance, regulatory concerns, Indian cryptocurrency law, blockchain technology, smart contract regulation, Reserve Bank of India, Securities and Exchange Board of India, crypto taxation, anti-money laundering, Know Your Customer norms, legal interpretations.

INTRODUCTION:

Cryptocurrency is a form of digital currency that enables transactions without the need for traditional banking institutions. It operates on a peer-to-peer network, allowing individuals to send and receive funds directly. Unlike tangible money, these digital transactions are recorded on an online ledger and are stored in virtual wallets.

The term “cryptocurrency” stems from its reliance on encryption technologies to verify transactions, enhancing security during the transfer of data between wallets and public ledgers. Bitcoin, introduced in 2009 was the first digital currency and remains the most prominent. Many investors are drawn to cryptocurrencies for their potential to generate profits, with trading activity often driving substantial price fluctuations. These digital currencies function through a decentralized ledger system known as the blockchain, which records and validates all transactions through a distributed network of users. New cryptocurrency units are created via mining—a

Computational process that solves complex mathematical puzzles to release new coins. Alternatively, digital assets can be purchased from brokers and managed through crypto wallets.

Holding cryptocurrency doesn’t equate to owning a physical asset. Instead, holders possess a unique cryptographic key that allows them to authorize the transfer of digital units between parties, without the need for an intermediary. With thousands of cryptocurrencies available, notable examples include Bitcoin, Ethereum, Litecoin, and Ripple.

In the Indian financial ecosystem, cryptocurrencies are becoming increasingly significant. Despite the Reserve Bank of India’s initial reservations, businesses—from startups to large corporations— are showing interest in blockchain-based assets for diversification, risk management, and technological advancement. However, due to the lack of a clear regulatory policy, corporate investors are left navigating an uncertain legal environment. This paper investigates the ongoing legal ambiguities and the regulatory response to corporate crypto investments in India.

LEGAL CHALLENGES ON A GLOBAL SCALE:

Cryptocurrencies have introduced various legal complexities across the globe, impacting how regulations are formed, enforced, and coordinated between countries. Below are some of the most pressing legal concerns:

  1. Regulatory Uncertainty and Cross-Border Issues

Cryptocurrencies operate in a decentralized manner, which often confuses regulatory jurisdiction and results in inconsistent policies. In India, for example, the Supreme Court reversed a 2018 directive from the Reserve Bank of India (RBI) that had restricted banks from engaging with crypto-based companies. Later, the government drafted the Cryptocurrency and Regulation of Official Digital Currency Bill 2021, which aimed to ban private cryptocurrencies while introducing a central bank digital currency (CBDC).

  1. Anti-Money Laundering (AML) and Know Your Customer (KYC) Regulations

Due to the semi-anonymous nature of digital assets, there’s a heightened risk of their use in illegal activities such as money laundering or terrorism financing. The Financial Action Task Force (FATF) has recommended that countries enforce strict AML and KYC guidelines. For example, under the EU’s Fifth Anti-Money Laundering Directive (5AMLD), virtual asset service providers (VASPs) must register with national authorities and comply with AML/KYC procedures.

  1. Classifying Cryptocurrencies Under Legal Definitions

Determining whether digital currencies should be classified as securities is a recurring challenge, particularly in the U.S. The Securities and Exchange Commission (SEC) has applied the Howey Test to determine if a cryptocurrency falls under securities laws, leading to high-profile legal disputes like SEC v. Wahi, which could influence how crypto is regulated in the future.

  1. Enforcement and Legal Precedents

Ongoing enforcement actions against major crypto exchanges, such as the SEC’s lawsuits against Binance and Coinbase, highlight difficulties in regulating decentralized platforms. These cases are pushing regulators to redefine oversight mechanisms. The SEC has even established a special crypto task force to bring more clarity to the sector.

  1. International Legal Coordination

The decentralized and borderless nature of cryptocurrencies creates challenges for cross-border legal enforcement. In China, for instance, debates have emerged about how to manage crypto assets confiscated during criminal investigations, reinforcing the call for a centralized legal framework to increase accountability and curb corruption.

  1. Development of New Legal Frameworks

In response to these issues, governments around the world are beginning to build more structured legal systems. The European Union passed the Markets in Crypto-Assets (MiCA) regulation in April 2023, aiming to improve consumer protection and curb illicit activities by holding crypto service providers accountable for losses.

CRYPTOCURRENCY REGULATIONS IN INDIA:

India’s regulatory landscape for cryptocurrencies presents a fascinating case of evolving ambiguity. While digital assets like Bitcoin and Pi Coin aren’t recognized as official legal tender, they aren’t outright banned either, placing India in a unique regulatory gray zone. An important early development in this space was the Supreme Court’s decision in Internet and Mobile Association of India v. RBI (2020). 

This ruling overturned the Reserve Bank of India’s (RBI) 2018 circular that had effectively prohibited banks and financial institutions from providing services to crypto exchanges and traders. The Supreme Court cited disproportionality as the primary reason for striking down the ban, offering a reprieve to the crypto industry in India.

However, this decision didn’t equate to formal legalization. As of 2025, cryptocurrencies still lack the status of legal currency in India. Nevertheless, the government has introduced significant tax obligations: a flat 30% income tax applies to profits from crypto trading or investing, and a 1% Tax Deducted at Source (TDS) is levied on transactions exceeding ₹50,000 (or ₹10,000 in specific scenarios). Furthermore, crypto exchanges are mandated to comply with anti-money laundering (AML) and Know Your Customer (KYC) regulations, with oversight under the Prevention of Money Laundering Act (PMLA).

Consequently, cryptocurrency in India navigates a legal limbo—a space brimming with potential for some, yet fraught with uncertainty and risk for others. The government has signaled its intent to provide clearer guidelines through the proposed Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. This draft legislation aims to restrict private cryptocurrencies while establishing a framework for a government-backed digital currency, a Central Bank Digital Currency (CBDC). The overarching goals are to safeguard investor interests and mitigate systemic financial risks.

It’s worth noting that cryptocurrencies operate on a decentralized framework where transactions are verified and secured without the need for centralized authority. Their very name highlights the cryptographic techniques employed to protect transaction data and ensure its authenticity. Sophisticated encryption mechanisms are integral to their security, effectively deterring fraudulent activities.

By including the Supreme Court’s 2020 decision early on, we can see how the regulatory landscape has evolved and the interplay between judicial rulings and government policy in shaping India’s stance on cryptocurrencies.

LEGALLY TRADED CRYPTOCURRENCIES IN INDIA:

Some of the widely traded digital currencies considered legal for investment purposes (but not legal tender) include:

  • Bitcoin (BTC)
  • Ethereum (ETH)
  • Pi Coin
  • Binance Coin (BNB)
  • Shiba Inu (SHIB)
  • Dogecoin (DOGE)
  • Cardano (ADA)
IS CRYPTO MINING ALLOWED IN INDIA?

Yes, mining digital currencies is legal in India. However, there are no specific laws that regulate it directly. Despite its legality, miners face considerable challenges, such as high energy costs and unclear regulatory guidelines. Additionally, earnings from mining activities are subject to a 30% income tax, along with a 1% TDS on transactions.

REGULATORY BODIES OVERSEEING CRYPTOCURRENCY IN INDIA:

Multiple authorities play a role in shaping and enforcing crypto regulations:

🡺 Digital Currency Board of India (DCBI) is proposed as the central authority for overseeing digital currencies.

🡺 Reserve Bank of India (RBI) – Regulates the banking aspects of crypto and has expressed ongoing concerns over decentralized currencies.

🡺 Ministry of Finance – Sets the tax framework and implements AML/KYC laws.

🡺 Securities and Exchange Board of India (SEBI) – Oversees investment aspects and may assume greater responsibility if crypto assets are legally categorized as securities.

The RBI had previously issued a directive in 2018 banning banks from dealing with crypto-related businesses, but this was overturned by the Supreme Court in 2020. Despite this, the central bank continues to warn investors about the volatility and potential risks of digital currencies and has instead pushed forward with its plan to introduce a central bank-backed digital rupee.

The Ministry of Finance has tightened regulations through amendments to PMLA, such as introducing the Travel Rule to track crypto-related transactions. SEBI, while not a direct regulator of cryptocurrencies yet, could play a vital role if they are formally classified as securities.

CRYPTOCURRENCY LAWS IN INDIA:

As interest in digital currencies surges across India, the government has introduced a series of laws and tax policies aimed at bringing order to the rapidly expanding crypto market. These regulations seek to manage the inherent risks associated with virtual assets while establishing a clearer legal framework for both investors and institutions.

1. Taxation Policies for Cryptocurrency

The Indian government has adopted a stringent approach to taxing cryptocurrency transactions, categorizing them distinctly from other asset classes. The primary tax provisions include:

  • Flat 30% Tax on Crypto Gains: A Disparate Treatment. Any income derived from the sale or transfer of virtual digital assets, including cryptocurrencies, faces a flat tax rate of 30%. Notably, unlike the taxation of capital gains from equity and other traditional investments, taxpayers are significantly restricted in deducting expenses, with only the cost of acquisition being permissible. This starkly contrasts with the treatment of capital gains on equity, where investors can typically deduct various expenses such as brokerage fees and transaction costs, and benefit from tiered tax rates based on holding periods (short-term vs. long-term capital gains). This differential treatment underscores the government’s current perception of cryptocurrencies as speculative ventures rather than recognized financial instruments or commodities.
  • 1% Tax Deducted at Source (TDS) on Transactions: To enhance transaction traceability and ensure tax compliance, a 1% TDS is applied to every crypto sale or transfer. This deduction is the responsibility of either the exchange facilitating the transaction or the individual making the payment. The TDS mechanism acts as a crucial tool for the government to monitor the burgeoning crypto activity and enforce tax regulations efficiently.

By drawing a direct comparison with the capital gains treatment for equity, the government’s current perspective on cryptocurrencies as speculative and higher-risk assets becomes much clearer. This disparity in tax treatment has significant implications for investors and the overall growth trajectory of the crypto market in India.

GLOBAL LEGAL LANDSCAPE:

India’s regulatory approach differs significantly from that of major global economies. For instance, cryptocurrencies in India are not recognized as legal tender, whereas Japan grants legal status to digital currencies. India’s flat 30% tax on crypto income is also much higher compared to the more progressive tax systems seen in the U.S. and the Eurozone, potentially deterring smaller investors.

While India is still developing a comprehensive regulatory framework, other regions have already moved ahead. The proposed Indian Crypto Bill shows progress but leaves many unanswered questions about enforcement and classification.

To gain a broader perspective, the paper compares India’s policies with those of the United States, the European Union, and Japan.

COMPARISON WITH GLOBAL ECONOMIES:
  • United States

Regulators: Oversight is decentralized, involving agencies like the SEC (Securities and Exchange Commission), CFTC (Commodity Futures Trading Commission), and FinCEN (Financial Crimes Enforcement Network).

Taxation: Cryptocurrencies are considered property and are subject to capital gains tax based on the duration of ownership.

Licensing: Several U.S. states have implemented licensing systems for crypto exchanges. For example, New York’s BitLicense requires compliance with rigorous standards.

  • European Union

Regulatory Framework: The EU is implementing the Markets in Crypto-Assets Regulation (MiCAR), which seeks to harmonize crypto regulations across all member countries.

Tax Treatment: Varies by country—some classify crypto as currency, others as property.

Consumer Protection: The EU emphasizes transparency and mandates crypto platforms to disclose risks and uphold consumer rights.

  • Japan

Recognition: Cryptocurrencies are legally recognized and regulated by the Financial Services Agency (FSA).

Taxation: Gains are considered miscellaneous income and are taxed on a sliding scale ranging from 15% to 55%.

Investor Security: Exchanges must meet strict security and operational standards to safeguard customer funds.

TREASURY APPLICATIONS OF CRYPTOCURRENCY:

From a corporate treasury perspective, digital assets can be used to:

  • Facilitate quick, secure money transfers.
  • Improve control over internal capital.
  • Address the risks and opportunities of digital investments.

Crypto can also act as a counterbalance to cash holdings, especially in inflationary environments where cash may lose value. Certain digital assets have demonstrated notable returns over the past several years, making them attractive from an investment standpoint.

CORPORATE ENGAGEMENT WITH CRYPTOCURRENCY:

Integrating cryptocurrency into corporate strategies unlocks numerous avenues, especially for businesses focused on innovation and diversification. A key benefit is access to a new, tech-savvy customer segment often drawn to luxury and cutting-edge products. Studies indicate that a significant majority of crypto-accepting businesses view it as a customer acquisition tool, with lower transaction fees also being a strong motivator.

Adopting cryptocurrency also fosters internal engagement with emerging technologies, positioning a company as forward-thinking in a financial landscape potentially shaped by central bank digital currencies (CBDCs). For instance, Infosys, a global IT giant headquartered in India, has been actively exploring blockchain technology, the underlying infrastructure of most cryptocurrencies, for various enterprise solutions. While not directly accepting a wide range of cryptocurrencies for its services yet, Infosys’s investment in blockchain reflects a strategic move to understand and leverage the broader digital asset ecosystem, which could eventually pave the way for crypto integration in specific use cases or partnerships.

The maturing crypto ecosystem presents novel investment opportunities like tokenized assets, enhancing liquidity and market access beyond traditional limitations. Innovations such as programmable money, enabling real-time revenue sharing and greater financial transparency, streamline processes like automated reconciliations and back-end accounting. For example, while specific large-scale Indian corporate partnerships directly involving widespread crypto payments are still nascent due to the regulatory environment, the principle of collaboration within the crypto space is evident. Indian crypto exchanges like WazirX have formed numerous partnerships with other blockchain and fintech companies to expand their services and reach. These collaborations, though primarily within the crypto ecosystem, demonstrate the potential for future partnerships between traditional corporations and crypto platforms to facilitate smoother transactions and broader adoption as regulations evolve.

Increasingly, companies recognize that key stakeholders—clients and suppliers alike—are showing interest in crypto transactions. This growing demand creates a business imperative to achieve crypto-compatibility for seamless exchanges and enduring relationships.

OPERATIONAL USE VS. INVESTMENT USE:

Utilizing crypto for operational needs requires a more strategic mindset than simply investing in it. While crypto investments are typically long-term, integrating them into daily operations demands real-time decision-making and strong internal protocols.

Incorporating crypto into business workflows can spark innovation in areas such as e-commerce and vendor relationships. It can also help companies extend their market reach and enhance customer experiences.

However, companies must carefully address onboarding challenges. These include understanding regulatory expectations, aligning accounting practices, and complying with complex tax guidelines—all of which currently lack clear direction in many jurisdictions.

RESEARCH METHODOLOGY:

This study applies a qualitative research approach, focusing on in-depth analysis and interpretation of existing sources. The methodology is based on an extensive review of policy documents, legal bills, public statements from Indian regulatory bodies, and key industry insights. Specifically, the research draws from:

  • Official government publications and draft bills, including the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.
  • Announcements and circulars issued by institutions such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).
  • News reports, market analyses, and commentary from experts discussing India’s evolving crypto landscape.
  • Comparative insights into global regulations in regions like the United States, European Union, and Japan, as elaborated in the global standards section.
REVIEW OF LITERATURE:

Current academic and policy literature highlights the growing complexity of cryptocurrency regulation across the globe. The lack of consistent legal definitions and regulatory coherence between nations has created major challenges. As scholars like Zetzsche et al. (2018) point out, classification disputes and enforcement gaps continue to hinder legal clarity.

A recurring theme is the emphasis on compliance with Anti-Money Laundering (AML) and Know Your Customer (KYC) protocols. International bodies like the Financial Action Task Force (FATF, 2020) have issued guidelines, and regions like the European Union have responded with legislation such as the Fifth Anti-Money Laundering Directive (5AMLD).

In the United States, legal debates center around whether certain digital assets qualify as securities, particularly under frameworks like the Howey Test, as seen in cases like SEC v. Wahi.

Turning to India, the regulatory landscape has been marked by flux. The RBI’s 2018 circular restricting banks from crypto dealings—later nullified by the Supreme Court in 2020 (Aggarwal & Kumar, 2021)—demonstrates the evolving institutional stance. The proposed Crypto Bill 2021 aims to formalize a legal structure for digital currencies, though its implications for private tokens remain unclear (Khaitan & Singh, 2022). On the fiscal front, India’s decision to impose a 30% tax on crypto profits and 1% TDS on transactions (Nangia Andersen India, 2023) reflects a strict policy stance.

At the same time, growing corporate interest in crypto stems from motivations like portfolio diversification, protection from market volatility, and innovation using blockchain (FICCI, 2024). Businesses see potential benefits in programmable money, operational efficiency, and appealing to crypto-savvy customers. However, the lack of clear legal and tax guidance remains a barrier to full-scale adoption.

Literature reveals a mix of opportunity and regulatory ambiguity in the Indian crypto space, influenced by global trends and domestic policy developments. Continued research is needed to analyze India’s unique regulatory challenges in greater depth.

METHODS:

This study is based on two primary analytical approaches:

  • Descriptive Analysis:

It outlines India’s current regulatory scenario, including taxation rules, AML/KYC obligations, the roles of financial authorities (RBI, SEBI, Ministry of Finance, and the proposed DCBI), and the complexities surrounding the pending Crypto Bill. It also details how corporations are gradually engaging with cryptocurrency for innovation and operations.

  • Comparative Analysis:

India’s crypto policies are compared with those in the United States, European Union, and Japan. Key areas of comparison include legal tender status, taxation systems, and the maturity of regulatory frameworks. This helps identify where India stands globally and what pathways it might consider for future policy development.

SUGGESTIONS FOR CORPORATIONS NAVIGATING THE INDIAN CRYPTO LANDSCAPE:

Navigating India’s evolving cryptocurrency landscape demands a thoughtful and strategic approach for businesses weighing the potential risks and rewards. To help corporations chart a course through this regulatory uncertainty, the following recommendations are categorized by their time horizon:

  1. Short-Term Strategies (Immediate to Within 1 Year)
  • Conduct Thorough Due Diligence: Immediately upon considering any engagement with digital assets, companies must perform comprehensive legal, financial, and technical due diligence. This includes a deep dive into current tax obligations—like the 30% income tax and 1% TDS—and strict adherence to existing AML and KYC compliance standards.
  • Monitor Regulatory Developments Actively: Staying ahead of the curve requires constant vigilance. Businesses should establish mechanisms to actively track upcoming legislative and policy shifts, including the progress of the proposed Crypto Bill and pronouncements from key regulatory bodies such as the RBI, SEBI, and the Ministry of Finance.
  • Ensure Regulatory Compliance and Transparency: From the outset, meticulous record-keeping of all crypto transactions is paramount. Businesses must guarantee that all digital asset activities are in full alignment with prevailing tax and AML/KYC regulations to avoid potential penalties.
  • Educate Internal Teams: To build a foundational understanding, organizations should promptly invest in educating relevant departments—finance, operations, legal, and IT—on the fundamentals of cryptocurrencies and blockchain, along with the inherent risks and legal responsibilities.
  • Seek Specialized Expertise: Recognizing the complexity of this domain, partnering with legal advisors, tax consultants, and blockchain technology experts in the short term can provide invaluable guidance and help businesses avoid costly missteps.
  1. Medium-Term Strategies (1 to 3 Years)
  • Prioritize Risk Management: As engagement with crypto deepens, implementing robust risk management systems becomes crucial. These systems should address crypto market volatility, potential data security breaches, and the ongoing evolution of legal uncertainties. Proactive risk mitigation can safeguard against future operational and reputational harm.
  • Take a Gradual Approach: Rather than large-scale immediate adoption, companies might consider initiating pilot programs or exploring limited, well-defined use cases. Scaling up should only occur after gaining clearer insights into the regulatory environment and developing internal expertise through practical experience.
  • Look Beyond Investment—Leverage Blockchain: While navigating the crypto investment landscape, businesses should concurrently explore how the underlying blockchain technology can enhance existing operational processes. Areas like supply chain tracking, ensuring data integrity and process automation present significant opportunities.

Long-Term Strategies (Beyond 3 Years)

  • Integrate Blockchain for Strategic Advantage: Over the long term, successful companies will likely identify and implement strategic applications of blockchain technology that provide a competitive edge. This could involve developing new business models, enhancing transparency with stakeholders, or participating in decentralized ecosystems.
  • Shape the Future Regulatory Landscape (Indirectly): By actively engaging in industry discussions, providing feedback on proposed regulations, and demonstrating responsible innovation, businesses can indirectly contribute to the development of a more stable and conducive regulatory environment for digital assets in India over the long haul.

By categorizing these recommendations across different time horizons, businesses can develop a phased and adaptable strategy to navigate the evolving world of cryptocurrency in India, balancing potential opportunities with a keen awareness of the regulatory landscape.

CONCLUSION

Adopting cryptocurrency and other digital assets involves far more than simply accepting a new form of payment—it requires a fundamental shift in how a business operates and thinks strategically. This is not a minor decision, but one that calls for deliberate planning and cross-functional collaboration.

Fortunately, companies don’t have to embrace crypto all at once. A step-by-step adoption process allows them to build capacity and confidence over time. However, successful implementation requires early involvement from key stakeholders across departments—ranging from the boardroom to legal, finance, risk management, and technology teams.

Engaging with cryptocurrency will likely demand the introduction of new policies, processes, and oversight mechanisms. It also requires openness to changing traditional ways of thinking in order to adapt to the evolving financial and technological environment. Strong leadership and strategic foresight—especially from senior executives—are critical to success.

As crypto adoption gains momentum globally, businesses must evaluate its relevance to their operations. Executives should be ready to articulate a well-informed perspective and present actionable recommendations on how to integrate digital assets into the company’s broader vision and strategy.

NAME: ANKITA BISWAS

COLLEGE NAME: SNEHANGSHU KANTA ACHARYA INSTITUTE OF LAW (SKAIL).