Launch a Crypto Exchange in India

Regulatory Landscape

India's crypto regulatory framework is evolving, with tax legislation in place while comprehensive regulatory legislation continues to develop.

VDA tax regime: The Finance Act 2022 introduced a 30% tax on income from the transfer of virtual digital assets, with no deduction for expenses other than the cost of acquisition. Additionally, a 1% Tax Deducted at Source (TDS) applies to all VDA transfers above specified thresholds. This tax regime, among the most stringent globally for crypto, has significantly impacted domestic trading volumes by increasing the effective cost of trading.

FIU-IND registration: Virtual digital asset service providers must register with the Financial Intelligence Unit-India (FIU-IND) under the Prevention of Money Laundering Act (PMLA). This registration requirement, which came into effect in 2023, establishes AML/CFT obligations for crypto exchanges including customer due diligence, record keeping, and suspicious transaction reporting.

No comprehensive crypto legislation: As of early 2026, India has not enacted comprehensive crypto-specific legislation that defines licensing requirements, consumer protection standards, or operational rules for exchanges. The regulatory framework consists primarily of the tax regime and AML/CFT requirements, with broader legislation expected but not yet confirmed.

RBI stance: The Reserve Bank of India has historically expressed concern about cryptocurrencies and their potential impact on financial stability. While the Supreme Court struck down the RBI's 2018 banking ban on crypto businesses, the central bank's cautious stance continues to influence banking relationships for crypto businesses.

International enforcement: FIU-IND has taken action against international exchanges operating in India without registration, including blocking access to non-compliant platforms. This enforcement signals that operating in India requires proper registration regardless of where the exchange is headquartered.

Registration and Compliance Requirements

The current compliance framework for crypto exchanges in India centers on FIU-IND registration and tax compliance.

FIU-IND registration: Exchanges must register with FIU-IND and implement a comprehensive AML/CFT program. This includes KYC procedures using Aadhaar-based verification (India's national ID system), transaction monitoring and suspicious activity reporting, record keeping for a minimum of five years, appointment of a Principal Officer responsible for AML compliance, and regular compliance reporting to FIU-IND.

TDS compliance: Exchanges must deduct and deposit 1% TDS on all VDA transactions above the threshold. This requires real-time tax calculation, timely deposit with tax authorities, and issuance of TDS certificates to customers. The TDS compliance infrastructure is a significant operational requirement that must be built into the exchange's systems.

GST considerations: Goods and Services Tax (GST) may apply to the exchange's service fees. The specific GST treatment of crypto exchange services has been subject to interpretation, and exchanges should obtain professional tax advice on their GST obligations.

Banking compliance: While there is no legal prohibition on banks serving crypto businesses, securing banking relationships remains challenging. Banks approach crypto businesses cautiously, and exchanges must demonstrate robust compliance programs to establish and maintain banking partnerships.

Entity requirements: There is no specific corporate form required for crypto exchanges, but most operate as private limited companies incorporated under the Companies Act 2013. Foreign direct investment in crypto exchanges is subject to general FDI rules, and specific restrictions may apply depending on how the exchange's activities are classified.

Market Opportunity

India's market opportunity for crypto exchanges is defined by enormous scale, though currently constrained by regulatory and tax factors.

Population and demographics: India's 1.4 billion population includes a large proportion of young, tech-savvy individuals. The median age is approximately 28, and smartphone penetration continues to grow rapidly. The combination of youth, technological adoption, and aspiration for financial growth creates a massive addressable market for crypto services.

Crypto adoption: Despite the restrictive tax regime, India maintains significant crypto adoption. Research estimates that 75 to 100 million Indians have interacted with crypto assets. India consistently ranks among the top countries for crypto adoption in global indices, particularly in grassroots and peer-to-peer usage.

UPI and digital payments: India's Unified Payments Interface (UPI) has created a population that is extremely comfortable with digital financial transactions. UPI processes over 10 billion transactions per month, demonstrating the scale of digital payment adoption. This digital payment infrastructure reduces friction for crypto exchange onboarding.

Volume potential: If the regulatory environment becomes more favorable, whether through revised taxation, clearer licensing, or both, the trading volume potential is enormous. Indian exchanges reached significant daily volumes before the 30% tax was imposed, and pent-up demand suggests rapid volume recovery if conditions improve.

Derivatives interest: Indian retail investors are active in derivatives markets on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), with India being one of the largest derivatives markets globally by contract volume. This deep cultural familiarity with derivatives trading translates to natural demand for crypto perpetual futures.

Practical Steps for Market Entry

Entering the Indian crypto market requires balancing the enormous opportunity with the current regulatory constraints.

Entity formation: Incorporate a private limited company under the Companies Act 2013. The incorporation process is relatively straightforward through the Ministry of Corporate Affairs. Foreign ownership is permitted subject to FDI regulations, though specific restrictions may apply to financial services companies.

FIU-IND registration: Register with FIU-IND and implement the required AML/CFT program. The registration process involves application submission, documentation of compliance policies, and demonstration of KYC and monitoring capabilities. Aadhaar-based verification integration is practically necessary for efficient customer onboarding.

Tax infrastructure: Build TDS compliance infrastructure into the exchange's systems from the start. This includes real-time calculation of TDS on transactions, automated deposit with tax authorities, and generation of TDS certificates for customers. The complexity of Indian tax compliance should not be underestimated.

Technology deployment: Deploy exchange infrastructure optimized for the Indian market. Whitelabel solutions from perps.studio provide the trading engine while the operator focuses on India-specific integrations including UPI payment integration, Aadhaar-based KYC, TDS calculation, and local language support (Hindi and major regional languages).

Banking relationships: Begin banking relationship development early, as it remains one of the most challenging aspects of operating a crypto business in India. Demonstrating FIU-IND registration and robust compliance significantly helps banking discussions.

Payment integration: Integrate with UPI for INR deposits and withdrawals. UPI integration is available through payment gateway providers and banking partners. Net banking, IMPS, and NEFT should also be supported as alternative payment methods.

Derivatives Regulatory Considerations

The regulatory treatment of crypto derivatives in India presents both challenges and potential opportunities.

Regulatory uncertainty: The current Indian framework does not explicitly address crypto derivatives. The Securities and Exchange Board of India (SEBI) regulates traditional derivatives markets, and it is unclear whether crypto perpetual futures would fall under SEBI jurisdiction, RBI jurisdiction, or require new regulatory provisions.

Tax treatment: The 30% VDA tax likely applies to profits from crypto derivatives trading, though the specific application to perpetual futures and funding rate income is not explicitly addressed in the legislation. Professional tax advice should be obtained to determine the precise tax treatment.

Market demand: Indian traders are among the most active derivatives traders globally, with the NSE being one of the world's largest derivatives exchanges by volume. This suggests substantial latent demand for crypto derivatives if regulatory clarity permits.

Strategic approach: Given regulatory uncertainty, operators may choose to prepare derivatives infrastructure through whitelabel platforms that can be activated when regulatory clarity emerges, while initially focusing on spot trading. This approach captures current market opportunity while positioning for derivatives when conditions allow.

Professional market focus: Focusing on institutional and professional traders for derivatives may be a viable approach, as these segments face fewer consumer protection constraints and generate higher per-user revenue. India's growing number of crypto-focused funds and trading firms represents a meaningful market segment.

Challenges and Strategic Outlook

Operators must carefully weigh the challenges against the enormous long-term potential of the Indian market.

Tax impact on volumes: The 30% tax and 1% TDS have significantly reduced domestic trading volumes. Many Indian traders have shifted to offshore platforms or peer-to-peer trading to avoid the tax burden. This reality means that current volume levels may not reflect the market's true potential, and operators should model their business plans based on current constrained volumes rather than theoretical unconstrained demand.

Regulatory evolution: India's crypto regulation is likely to evolve significantly over the coming years. The government has participated in G20 discussions on crypto regulation and may align its framework with emerging international standards. Changes to the tax regime, particularly the potential reduction of the 30% rate or the 1% TDS, could dramatically increase domestic exchange volumes.

Banking challenges: Banking access remains difficult for crypto businesses in India. While not legally prohibited, banks exercise caution that sometimes amounts to de facto exclusion. This challenge may ease as regulatory clarity improves and more exchanges achieve FIU-IND registration.

Long-term conviction: Despite current challenges, the long-term case for the Indian crypto market is compelling. The combination of population scale, young demographics, technological adoption, and growing financial sophistication suggests that India will be a top-three global crypto market over the next decade. Operators who establish a compliant presence now, even at modest scale, are positioned to scale rapidly when conditions improve.

Cost advantage: Operating costs in India are significantly lower than in Singapore, Hong Kong, or Western jurisdictions. Engineering talent, compliance staff, and office space are available at fractions of developed market costs. This cost advantage allows operators to maintain lean operations while building market position.