India's Regulatory Shift in Crypto and Global Compliance Risks

India's cryptocurrency landscape in 2025 is undergoing a seismic transformation, marked by a shift from regulatory ambiguity to a structured, enforcement-driven framework. This evolution has profound implications for cross-border crypto asset management and investor protection, as India's approach increasingly aligns with global standards while introducing unique challenges for market participants.

A New Regulatory Framework: From Ambiguity to Enforcement

India's regulatory pivot began in earnest with the March 2023 PMLA VASP Notification, which brought virtual asset service providers under anti-money laundering oversight. This move effectively ended the previous regulatory gray area, requiring entities engaged in activities like fiat-to-crypto exchanges, custody, and token transfers to comply with stringent AML/CFT obligations. Notably, the law does not distinguish between centralized and decentralized finance protocols, emphasizing that operational control-not technical decentralization-determines regulatory liability.

Enforcement actions have since intensified. In October 2025, the Financial Intelligence Unit-India (FIU-IND) blocked 25 offshore exchanges, including AscendEx, BitMEX, and Poloniex, for operating without registration under the PMLA. These platforms were ordered to withdraw their apps and websites from India, signaling a zero-tolerance stance toward non-compliance. Meanwhile, only five exchanges remain active and compliant: Binance, Coinbase, CoinSwitch Kuber, ZebPay, and Mudrex. This crackdown underscores India's commitment to integrating crypto into its formal financial system, even as it grapples with balancing innovation and oversight.

Cross-Border Compliance: A Global Challenge

India's regulatory approach has significant cross-border implications. The PMLA's activity-based framework means that even offshore platforms must comply with Indian AML rules if they serve Indian users. For example, Binance faced penalties in 2024 for failing to meet KYC/AML obligations, demonstrating that geographic distance offers no immunity(https://www.globallegalinsights.com/practice-areas/blockchain-cryptocurrency-laws-and-regulations/india/). This aligns with global trends, such as the Financial Action Task Force (FATF) Travel Rule, which India has adopted to ensure sender-receiver information is shared on crypto transactions.

However, compliance is complicated by India's high taxation regime. A flat 30% tax on crypto profits, coupled with a 1% tax deducted at source (TDS) on transactions above INR 10,000, has driven some investors to seek alternatives in jurisdictions like Dubai. The Reserve Bank of India's (RBI) push to implement the OECD's Crypto-Asset Reporting Framework (CARF) by April 2027 further complicates matters, as it will automatically report crypto transactions globally, increasing transparency but also compliance burdens(https://finance.yahoo.com/news/india-cracks-down-25-crypto-171842306.html).

Investor Protection: Legal Recognition and Taxation Burdens

India's legal system has began to recognize cryptocurrencies as "property", a pivotal development for investor confidence. The Madras High Court's ruling in 2025 reinforced the legitimacy of digital assets, providing a legal foundation for future regulatory clarity. However, investor protection remains constrained by India's aggressive taxation. The inability to offset losses and the 30% profit tax have reduced trading volumes, pushing some investors to offshore platforms.

The Gujarat National Law University (GNLU) has highlighted the need for clearer legislative definitions and stronger consumer protections in its consultations on crypto regulation. These efforts aim to address gaps in the current framework, such as the lack of a comprehensive VDA law, while balancing innovation with financial stability.

Global Cooperation and the Path Forward

India's regulatory strategy reflects a preference for alignment with international standards over formal treaties. While the country has not entered into specific crypto regulatory agreements, it has adopted frameworks like the FATF Travel Rule and is preparing for the OECD's CARF(https://www.giottus.com/blog/crypto-regulations-in-india-all-you-need-to-know-in-2025). This approach allows India to maintain sovereignty while participating in global efforts to combat financial crime.

However, the absence of a unified international framework creates friction. For instance, the EU's Markets in Crypto-Assets (MiCA) regulation, which introduces harmonized licensing across member states, contrasts with India's fragmented approach. This divergence complicates cross-border asset management, as platforms must navigate varying compliance requirements.

Conclusion: Navigating the New Normal

India's 2025 regulatory shift represents a critical juncture for global crypto markets. While the country's enforcement actions and tax policies have curtailed speculative trading, they have also spurred innovation in compliance solutions and institutional adoption. For cross-border asset managers, the key challenge lies in adapting to India's stringent AML requirements and high taxation while leveraging its status as the world's top crypto adoption market(https://finance.yahoo.com/news/india-cracks-down-25-crypto-171842306.html).

Investors, meanwhile, must weigh the risks of India's regulatory environment against its potential rewards. The integration of the Digital Rupee with UPI and the proposed Crypto Assets Regulatory Authority (CARA) under the COINS Act 2025 suggest a long-term commitment to structured oversight. As India continues to refine its approach, the global crypto ecosystem will need to balance compliance with the dynamism that has made India a key player in the digital asset space.