Crypto assets ‘unregulated in India’: How regulators are using tax and KYC data to track crypto transactions

The Government has taken note of concerns related to investments made through crypto-assets and their potential misuse for money laundering and illicit trade, the Ministry of Finance informed the Lok Sabha on Monday.

Replying to Unstarred Question No. 309, Minister of State for Finance Pankaj Chaudhary said that crypto-assets or Virtual Digital Assets (VDAs), including Non-Fungible Tokens (NFTs), are unregulated in India, and the government does not collect data on these assets. However, the sector has been brought under the Financial Intelligence Unit–India (FIU-IND) for anti-money laundering (AML) and combating the financing of terrorism (CFT).

VDA service providers (VDASPs) have been made subject to registration, customer due diligence, record-keeping and suspicious transaction reporting obligations. FIU-IND, as the AML/CFT regulator, receives and analyses suspicious transaction reports submitted by VDASPs and shares actionable intelligence with law enforcement agencies to curb money laundering and terror financing activities.

The Minister said FIU-IND has taken action under Section 13 of the Prevention of Money Laundering Act (PMLA), 2002, against non-compliant VDASPs. The Enforcement Directorate has also investigated several crypto-related cases under PMLA, attaching, seizing or freezing proceeds of crime worth ₹4,209.74 crore, arresting 29 persons, and filing 24 prosecution complaints. One accused has been declared a Fugitive Economic Offender.

In addition, cases of tax evasion linked to VDAs have been detected by the Central Board of Direct Taxes (CBDT) on multiple occasions.

The Income Tax Department takes action as per the Income Tax Act, 1961, including nudging taxpayers, e-verification, reassessment, survey, or search and seizure.

The CBDT’s NUDGE (Non-Intrusive Usage of Data to Guide and Enable) campaign has been launched to encourage voluntary compliance and awareness regarding proper reporting of VDA transactions.

The government also said that the Prohibition of Benami Property Transactions Act, 1988, and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, apply to all assets, including VDAs.

Meanwhile, replying to Unstarred Question No. 263, the Minister informed the House that Virtual Digital Asset Service Providers are ‘Reporting Entities’ under the PMLA, 2002. FIU-IND introduced detailed AML/CFT guidelines for entities providing VDA-related services on March 10, 2023, which were amended on January 8, 2026.

The amended guidelines enhanced KYC measures, including obtaining a selfie of the client with liveness detection, latitude and longitude coordinates of the onboarding location with date and timestamp, IP address, and a mandatory bank transaction of Re.1, along with verification of client identity.

The government clarified that no special arrangement has been made under these provisions to ensure the privacy and data security of investors. It also stated that no proposal is currently under consideration to completely regulate or ban cryptocurrency.

The Reserve Bank of India (RBI) has cautioned users, holders and traders of VDAs through public notices about the economic, financial, operational, legal, customer protection and security-related risks associated with such assets. RBI has also advised regulated entities to continue carrying out customer due diligence for VDA transactions in line with KYC, AML, CFT and PMLA requirements.