Over the past month, India’s regulatory posture on Virtual Digital Assets (“VDA(s)”) has become clearer in both design and direction. Developments have not come through a single consolidated crypto statute, but through a combination of regulatory instruments that together shape the market’s compliance perimeter. The key signal is that India is continuing with a “risk-first” approach: strengthening AML/KYC as the primary regulatory lever, maintaining a relatively restrictive tax treatment that influences onshore market behaviour, and positioning the regulatory system to respond faster to technology-led changes across financial markets.
FIU-IND: Updated AML & CFT Guidelines for VDA Service Providers (8 January 2026)
FIU-IND has issued an updated set of AML and CFT guidelines for reporting entities dealing in VDAs, dated 08.01.2026. This update is significant not merely because it reiterates compliance obligations, but because it begins to set expectations at the level of practical implementation. Rather than remaining confined to high-level AML requirements, the guidelines reflect a shift towards operationalised KYC verification and traceability.
A central feature of this update is the enhanced emphasis on onboarding integrity, with requirements commonly understood as introducing or strengthening mechanisms such as live selfie/liveness checks and geo-location capture during onboarding. These are not cosmetic process changes. They are regulatory tools designed to raise the degree of identity certainty, reduce the feasibility of mule accounts, and support stronger attribution in suspicious transaction analysis.
The implications for VDA businesses are immediate and multi-layered. First, compliance teams will need to reassess KYC workflows as a system design issue rather than a formality. Second, onboarding practices incorporating geo-location also raise questions of privacy compliance and defensibility: businesses will need to ensure the capture is properly disclosed, consented to where required, retained in line with defensible governance standards, and contractually supported where third-party vendors provide identity verification tools.
A further practical effect is that onboarding upgrades will not sit in isolation. Once onboarding becomes more technologically intensive, it strengthens FIU’s ability to evaluate whether suspicious patterns could reasonably have been detected and escalated. This increases the compliance relevance of transaction monitoring thresholds, escalation protocols, and documentation of decisions not to report.
Tax Policy Domain: Budget 2026 Discourse on VDA Taxation
Alongside FIU’s tightening, policy discourse around VDA taxation has gained intensity in the lead-up to Budget 2026. Reporting in mainstream media has highlighted increasing advocacy for recalibration of India’s crypto tax framework, particularly around the 30% tax on VDA gains and the 1% TDS on VDA transfers.
While no legal change has yet been enacted, this is still significant for two reasons. First, tax rules in India currently perform a quasi-regulatory role in the VDA sector. They do not merely collect revenue; they shape market structure. Second, fiscal friction affects user behaviour and business viability in ways that can undermine the goal of a compliant, onshore market.
In that context, the Budget discourse points to a tension at the heart of India’s VDA governance. A stringent tax posture can function as indirect market suppression even without formal prohibition. This is why the Budget 2026 discussions matter even before any amendment. They reflect a broader policy question: whether India wants the VDA sector to remain a narrowly tolerated activity governed primarily through deterrence and enforcement, or whether it intends to move towards conditional integration with calibrated fiscal treatment.
RBI Domain: Compressed Regulatory Response Time as a Structural Constraint
We also saw a strong regulatory posture statement relating to digitalisation and the resulting compression of regulatory response time. The underlying point is not about crypto alone, but it has direct spillover significance for the VDA market: digital financial products evolve faster than conventional consultative rulemaking cycles.
This structural constraint encourages regulators to use tool-based compliance rather than solely principle-based regulation. It is easier to mandate measurable controls such as identity assurance steps, traceability data points, and reporting triggers than to constantly update a full market conduct rulebook in response to product innovation. This helps explain why FIU’s approach is becoming more implementation-specific and why technological compliance requirements are becoming central.
The RBI posture also supports the inference that future regulation is likely to be more systems-oriented. Rather than relying entirely on ex post enforcement, regulators may increasingly require businesses to create ex ante compliance architecture that reduces risk by design. In digital assets, where transaction speed and cross-border movement create both consumer and systemic risk, such an orientation is particularly likely.
Holistic Assessment: A Functional Regulatory Model with AML at its Core
These developments fit together as parts of a broader picture: India is regulating digital assets primarily through financial integrity enforcement and fiscal controls, while market-structure regulation remains in an earlier stage. The most important takeaway is that India’s VDA framework is becoming more demanding without necessarily becoming more consolidated. This creates a compliance environment where VDA businesses must operate with increasing regulatory expectations, while simultaneously navigating uncertainty about longer-term sectoral legislation.
The near-term compliance equilibrium in India therefore appears to be this: if VDA activity is to occur, it must occur within a high-integrity, traceable, and heavily monitored AML perimeter, even if policy continues to deliberate on whether the sector should be expanded, integrated, or restrained through fiscal measures.
Disclaimer: The information published in the above newsletter is collected from various sources in electronic medium and analyzed by the firm. The reader is advised to consult the attorney qualified in their jurisdiction, before acting on any information contained in this newsletter. India Juris excepts no liability what so ever in this regard.
