Securities and Exchange Board of India

India’s parliamentary finance committee has recommended industry-run Self-Regulatory Organizations to oversee crypto markets under central bank or securities regulator supervision, offering a middle path between the RBI’s push for outright bans and the country’s 39 million unprotected retail traders. The proposal marks the first formal government oversight framework for digital assets in a nation that taxes crypto at 30% without legally recognizing it as an asset class.

• Parliamentary committee recommends SROs supervised by RBI or SEBI to regulate crypto markets and protect 39 million traders currently operating without legal safeguards
• India taxes crypto profits at 30% flat rate and applies 1% tax-at-source on transactions, yet has no legislation formally recognizing digital assets
• RBI continues advocating for crypto bans, particularly targeting dollar-pegged stablecoins as threats to monetary sovereignty, while less than 25% of traders report profits

• 39.3M KYC-verified crypto users holding approximately $2.4 billion in digital assets domestically
• 30% flat tax rate on crypto profits, with 1% additional tax deducted at source on transactions
• July 23 date Parliament received the Standing Committee’s 36th report recommending SRO-based regulatory framework

India has taken its first concrete step toward regulating cryptocurrency markets, but the path forward remains contested between institutional safeguards and continued pressure to ban digital assets entirely.

On July 23, Parliament received a formal recommendation from the Standing Committee on Finance proposing that industry-run Self-Regulatory Organizations oversee the country’s crypto trading under supervision from either the Reserve Bank of India or the Securities and Exchange Board of India.

The proposal attempts to bridge a regulatory void that has left 39.3 million KYC-verified traders exposed to operational risk while the government simultaneously imposes a 30% tax on profits and collects 1% tax-at-source on all transactions.

The framework reflects an international best-practice approach. The parliamentary committee studied regulatory models in the United Kingdom, Singapore, the United States, and the European Union before recommending the SRO structure as an interim solution pending permanent legislation.

Under the proposal, these organizations would enforce conduct standards for crypto exchanges, audit reserve holdings, legally segregate customer funds from corporate balance sheets, and manage customer complaints.

This interim approach acknowledges what India’s Ministry of Finance has stated plainly: digital assets currently sit outside the country’s regulatory perimeter except for taxation, anti-money laundering, and transaction reporting.

RBI maintains hardline stance against crypto despite regulatory framework proposal

The parliamentary recommendation arrives amid sustained pressure from India’s central bank to prohibit cryptocurrency outright. In May and June, the Reserve Bank submitted formal guidance to the committee opposing private crypto and particularly targeting dollar-pegged stablecoins as incompatible with India’s monetary sovereignty.

The RBI’s position reflects a consistent institutional skepticism toward digital assets that has shaped Indian policy for years, creating a fundamental tension at the heart of the government’s emerging approach.

Data from the RBI itself illustrates the market that policymakers are attempting to oversee. The central bank identified 54 FIU-registered service providers operating in India and 39.3 million KYC-verified users holding approximately $2.4 billion in domestic cryptocurrency holdings.

These figures establish the scale of activity that regulatory absence has enabled: nearly 40 million individuals trading in a market with no formal legal framework, no recognized asset classification, and no safeguards beyond the institutional safeguards the SRO model would introduce.

The RBI’s simultaneous push for bans reflects institutional concern that retail participation in unregulated markets creates systemic risk and currency instability.

Tax authorities align with the RBI’s skepticism. Officials noted that offshore trading proves difficult to track and that compliance remains minimal: fewer than 25 percent of the approximately 645,000 individuals who transacted in crypto during the year ending March 2023 actually reported their gains to tax authorities.

This compliance gap undermines the government’s 30% profit tax, suggesting that without regulatory oversight and reporting infrastructure, taxation remains aspirational rather than effective.

Regulatory void leaves 39 million traders without legal asset classification

India’s current crypto policy consists almost entirely of taxation without recognition.

The government imposes a flat 30% tax on cryptocurrency profits and levies a 1% tax-at-source deduction on all transactions, yet the Ministry of Finance explicitly states that crypto-assets fall outside India’s regulatory purview except for tax collection, anti-money laundering compliance, and transaction reporting to the Financial Intelligence Unit.

This creates an unusual legal status: profitable but unrecognized, taxed but unregulated, and formally invisible within India’s securities and banking frameworks.

The Standing Committee’s recommendation addresses this classification gap directly. The report notes that digital assets span multiple functional categories, some tokens behave like securities, others like derivatives, and many fall into entirely distinct categories, yet no legal definitions clarify these distinctions in Indian law.

Without statutory clarity, exchanges operate in legal ambiguity, customers face operational risk, and regulators lack enforcement tools. The SRO framework would establish interim conduct standards while Parliament drafts permanent legislation defining these categories and establishing formal regulatory authority.

This interim approach represents a pragmatic acknowledgment of political reality. A complete crypto ban faces resistance from the industry and the retail trader base, yet RBI concerns about monetary stability and regulatory risk remain legitimate institutional concerns.

The SRO model delays the full legalization debate while installing protective infrastructure for the 39 million existing traders and the broader market ecosystem.

Parliament must reconcile committee recommendation with RBI’s continued ban advocacy

The Standing Committee’s July 23 report now enters a critical phase of parliamentary and executive consideration. The recommendation exists in direct tension with the RBI’s explicit guidance to the same committee advocating prohibition, creating a decision point that India’s government must resolve before any statutory action can proceed.

The RBI’s concerns center on stablecoins specifically, with officials arguing that dollar-pegged tokens would undermine India’s monetary control and create currency substitution risks incompatible with a sovereign central bank’s policy objectives.

The committee framed the SRO approach as a temporary measure pending permanent legislation. This framing suggests Parliament recognizes that an outright ban, despite RBI support, would disrupt established market activity affecting millions of retail participants and numerous exchanges.

The SRO framework preserves the option for later prohibition while immediately installing safeguards and reporting infrastructure that would make any future regulatory transition more orderly. Whether the Finance Ministry and Parliament ultimately favor this incremental approach or opt for the RBI’s preferred prohibition remains the central open question.

The next decisive moment arrives when Parliament formally considers the Standing Committee’s recommendation and the Finance Ministry must clarify whether it endorses the SRO interim framework or aligns with RBI prohibition guidance. The framework’s viability depends on resolving that institutional tension, without clear government support, exchanges cannot establish regulatory infrastructure under unrecognized SROs, but without SRO implementation, India’s 39 million traders remain unprotected and the compliance gap that allows 75% of traders to avoid reporting continues unchecked.