LEGAL ASPECTS OF CRYPTO AND CENTRAL BANK DIGITAL
CURRENCY
-Aaryansh Agrawal
INTRODUCTION
In the winding corridors of modern finance, the lines between currency, commodity
and code are getting blurred faster than ever. The Finance Act’s regulation of Virtual
Digital Assets (VDAs) is India’s first attempt to tame a wild digital frontier within the
rule of law, is a chance and a warning to investors. Meanwhile the Reserve Bank of
India's initial trial of the Digital Rupee marks the nation as standing on the brink of a
sovereign backed alternative to private cryptocurrencies, efficiency while testing the
monetary policy. But as decentralised tokens and centralised digital currency fight for
legitimacy, the absence of a Crypto Regulation Bill leaves a gap—where investor
protection, systemic stability and financial sovereignty hangs in balance.
CRYPTO, CODE AND THE DIGITAL RUPEE: INDIA’S LEGAL
TIGHTROPE
A decade ago, money was straightforward: coins in your pocket, cash in your wallet,
perhaps a credit card if you were flush. If you were to bring the present day forward,
your"wallet" could be an app that contains Bitcoin, Ethereum, or a pixel-perfect token
of a cartoon ape. Welcome to an era when currency is no longer printed—it's coded.
India is not standing on the sidelines of this revolution. It's jumping right into the
ring—taxing private crypto, pilot-testing its own Digital Rupee, and discussing a
broad law to impose order on the anarchy. At stake? Investor confidence, financial
stability, and the very meaning of money itself.
FINANCE ACT: INDIA’S FIRST LEGAL GRIP ON VIRTUAL DIGITAL
ASSETS
By bringing Virtual Digital Assets (VDAs) under the tax purview, it was a clear
signal: crypto is no longer law invisible; Profits are taxed and 30%, transfers come
with a 1% TDS, and rules on reporting are less toothless. The intention is of course to
curb such shadow trades, add an element of transparency and ensure that the level of
illicit flows are maintained. However, heavy taxes with some of the levels being
proposed could dissuade not just the bad actors but innovators as well, and this is
where it gets dicey.
The Finance Act of India was the country's landmark event that changed how it dealt
with digital assets. The government, by officially recognising Virtual Digital Assets
(VDAs) and setting a tax system for them, went a step further from mere watching to
active management. It defined the legal boundaries as well as the rights and taxes
responsibilities and reporting obligations were established to increase the
accountability of the transactions and to prevent their illegal use.
RBI’S DIGITAL RUPEE (E₹): A CENTRAL BANK DIGITAL CURRENCY IN
MOTION
While decentralized cryptocurrencies claim to offer freedom from central control, the
Reserve Bank of India is taking a different path - developing a Central Bank Digital
Currency (CBDC) with full government backing. The Digital Rupee, that is currently
In the pilot phase, it is possible that it can enable quicker transactions, reduced
transaction costs and minimize the dependence on cash. Sounds like an ideal solution?
Not entirely. There remain many questions that are still unanswered -
Q How much privacy will citizens be allowed?
Q What will happen to commercial banks if central banks can directly interact with
the public?
The e₹ is not just a new mode of payment, but a challenge for the very structure of
our financial system. Its pilot programs, which cover both wholesale and retail use,
are experimenting to combine the stability of the sovereign with the efficiency of
block chain-inspired technology. The e₹ aims to offer instant settlement, lower
reliance on cash, and an improved payment system that can withstand shocks.
Nevertheless, there are issues concerning privacy, system compatibility, and the
position of the sector that accompany it. The process, therefore, is not only a
technology deployment but also a redesign of a state's money in the digital economy.
URGENT NEED FOR A COMPROHENSIVE CRYPTO REGULATION BILL
The tax provisions of the Finance Act and RBI's Central Bank Digital Currency
(CBDC) initiative are just pieces of a bigger picture. India does not have a specific,
detailed Crypto Regulation Bill that deals with investor protection, financial security,
anti-money laundering compliance, and technological innovation equally. A
fragmented policy landscape is likely without such a Bill, where taxation would be
separate from consumer safeguards, and CBDC rollout might not be properly
integrated with the overall crypto ecosystem. India could become a better place with a
properly planned Bill that could pionee rthem in responsible fintech innovation, thus
capital markets, technology firms, and retail investors could all be on stable legal
ground.
India’s approach to cryptocurrency is currently similar to a patchwork quilt, with
varying tax rules and central bank digital currency (CBDC) experiments but no single
law that comprehensively regulates the crypto sphere. The lack of a Crypto
Regulation Bill means that the protection of investors is only on the reactions side, the
safety of finance is exposed to potential risks, and innovation can either flow
unchecked or go beyond the country.
CONCLUSION
India is handling two different situations - private cryptocurrencies that offer (and
threaten) decentralization, and the Digital Rupee that guarantees stability from the
state. They both require laws. They both require confidence. And both are changing
the way Indians will understand, possess and transfer money.
It is not a matter of whether we need regulations or not. The question is whether we
will be able to put them in place in time, with the right intelligence and fairness before
the future of money goes beyond us.
