As digital assets become more mainstream, the Indian government has introduced stricter compliance requirements and legal liabilities for businesses dealing with Virtual Digital Assets (VDAs). These platforms include crypto exchanges, NFT marketplaces, custodial wallet providers, and VDA aggregators.
Effective FY 2025-26, the Ministry of Finance, through updates in Income Tax Act, Prevention of Money Laundering Act (PMLA), and other digital frameworks, has mandated that VDA platforms operate with the same regulatory discipline as traditional financial institutions.
This article outlines the new liabilities, reporting standards, penalties, and regulatory expectations for VDA platforms in India.
As per the Finance Act, 2022, Virtual Digital Assets include:
Cryptocurrencies (e.g., Bitcoin, Ethereum, etc.)
Non-Fungible Tokens (NFTs)
Any digitally stored token of value not classified as legal tender or currency.
VDA platforms are required to deduct 1% TDS on all transactions involving transfer of VDAs, where consideration exceeds:
₹10,000 per year (for individuals)
₹50,000 per year (for specified persons or businesses)
Platforms must report TDS through Form 26Q/26QE and ensure timely payment to the government.
As per the Ministry of Finance notification, VDA service providers are now treated as reporting entities under the PMLA.
They must follow:
KYC norms before onboarding customers
Suspicious Transaction Reporting (STR)
Record maintenance of user identities and transaction trails for at least 5 years
Platforms are required to furnish annual statements of VDA transactions under the Income Tax framework.
They must disclose transaction volumes, user data, consideration value, and wallet-to-wallet transfers.
All users must undergo full PAN-based KYC with additional verification for large volume traders.
Transactions above ₹10 lakh require enhanced due diligence, including proof of source of funds.
Platforms providing custodial wallets are liable for:
Ensuring security of digital wallets
Tracking and flagging blacklisted tokens or blockchain addresses
Disclosing wallet linkage to individuals/entities when requested by enforcement authorities.
Platforms facilitating cross-border VDA transactions must comply with FEMA provisions and FATF (Financial Action Task Force) guidelines.
Foreign transactions without regulatory clearance may attract penalties under FEMA and PMLA.
| Non-Compliance | Penalty/Consequences |
|---|---|
| Failure to deduct TDS | Tax recovery + interest + ₹10,000 penalty |
| No KYC/AML Reporting | ₹1 lakh per failure + possible suspension |
| Non-filing of VDA transaction statements | ₹500/day late fees + prosecution possibilities |
| Ignoring wallet security or suspicious trades | Enforcement Directorate (ED) action under PMLA |
With increased regulation comes enhanced legitimacy. Platforms that comply with the new rules can:
Build greater investor confidence
Gain access to institutional partnerships
Scale under well-defined legal frameworks
Stand out in the crowded VDA market through transparency and compliance
The year 2025 marks a new era of accountability for Virtual Digital Asset platforms in India. With stricter tax, AML, KYC, and compliance mandates, crypto exchanges and NFT platforms must evolve from tech-first startups to finance-compliant institutions.
Staying ahead of these regulatory shifts will not only protect platforms from penalties but also position them as trusted players in the future of digital finance.
For crypto platforms, compliance is no longer optional—it’s the cost of trust and survival.