India’s cryptocurrency market dramatically shifted when the Supreme Court struck down the Reserve Bank of India‘s 2018 banking ban in March 2020. The landmark ruling in Internet and Mobile Association of India vs. Reserve Bank of India didn’t just restart crypto trading—it redefined the boundaries between regulatory authority and economic freedom in India’s digital economy.
The 2018 RBI Circular That Banned Crypto
On April 6, 2018, the RBI issued a circular titled “Prohibition on Dealing in Virtual Currencies,” directing all banks and financial institutions to stop providing services to anyone involved in cryptocurrency transactions.
The impact was immediate and devastating. Crypto exchanges shut down overnight. Investors couldn’t trade or withdraw funds. The entire industry was cut off from India’s banking system—not through legislation, but through a single administrative circular.
The RBI’s rationale centered on protecting financial stability, citing risks of money laundering, terrorism financing, and consumer harm. But here’s the critical issue: cryptocurrency wasn’t actually illegal in India. No law banned it. The RBI had used administrative power to eliminate an industry without parliamentary authorization.
The Constitutional Challenge
The Internet and Mobile Association of India challenged the circular in Supreme Court, arguing it violated Article 19(1)(g) of the Indian Constitution—the fundamental right to practice any profession or carry on trade and business.
Their core argument was simple but powerful: cryptocurrency doesn’t meet the legal definition of currency. It’s not legal tender. Therefore, the RBI’s regulatory powers under the RBI Act of 1934 and Banking Regulation Act of 1949 didn’t extend to crypto assets.
The petitioners also challenged the circular’s proportionality. Even if the RBI had legitimate concerns, completely severing an entire industry from banking without concrete evidence of harm seemed grossly disproportionate.
The RBI defended its position by emphasizing its mandate to maintain financial system stability. The central bank argued it wasn’t banning crypto directly—just protecting banks by instructing them not to deal with crypto-related entities.
The Supreme Court’s Historic Decision
In March 2020, a three-judge bench led by Justice Rohinton F. Nariman delivered the verdict that changed everything.
The Court acknowledged the RBI’s regulatory authority but drew a critical distinction: regulatory power over banks doesn’t include the authority to eliminate legitimate trade. The RBI can manage banking sector risks, but it cannot functionally ban activities that Parliament has never prohibited.
Applying the doctrine of proportionality—established in cases like Modern Dental College vs. State of Madhya Pradesh—the Court found the circular failed on multiple grounds:
First, the RBI couldn’t provide concrete evidence that crypto had actually harmed the banking system. The ban was based on theoretical risks, not documented damage.
Second, completely cutting off an entire industry represented the most extreme intervention possible, not a measured response.
Third, less restrictive alternatives existed—disclosure requirements, transaction monitoring, or risk warnings could have addressed concerns without a total ban.
The Supreme Court declared the 2018 circular unconstitutional and struck it down entirely, ruling it violated the fundamental right to trade under Article 19(1)(g).
What Changed After the Ruling
Banks could immediately resume servicing crypto exchanges and traders. Platforms that had shut down began rebuilding. Trading volumes recovered.
But the Court included a crucial clarification: cryptocurrency is not legal tender in India. You cannot use Bitcoin to buy coffee or pay bills. Merchants aren’t required to accept it. It doesn’t have the legal status of rupees.
What crypto became was a tradable asset. Indians can legally hold, buy, sell, and trade digital assets—activities protected as legitimate economic transactions. But crypto didn’t gain recognition as money.
India’s Current Crypto Framework
Following the Supreme Court decision, India shifted from prohibition to structured regulation.
The Income Tax Act was amended in 2022, creating a specific tax regime: Section 115BBH imposes a 30% tax on crypto gains—significantly higher than traditional investment rates. Section 194S mandates 1% TDS (tax deducted at source) on every transaction.
In 2023, crypto exchanges became reporting entities under the Prevention of Money Laundering Act (PMLA), subjecting them to the same anti-money laundering and KYC requirements as banks.
The approach now: cryptocurrency isn’t encouraged, but it’s recognized as legal activity under close oversight, taxation, and compliance requirements.
What This Means for Indian Traders
The practical takeaways are clear:
Crypto trading is legal. You can buy, sell, and hold digital assets through registered exchanges without legal risk.
Tax obligations are substantial. The 30% gains tax applies regardless of holding period, and the 1% TDS adds up for frequent traders.
Crypto isn’t currency. You’re holding digital assets as investments or tradable commodities, not as money for purchases.
Exchanges face strict compliance. More KYC documentation and regulatory oversight than crypto’s early days.
Three Critical Precedents Set
This decision established principles beyond cryptocurrency:
Constitutional protection for economic freedom was strengthened. Courts will actively protect the right to trade against administrative overreach.
The doctrine of proportionality was refined. Government responses must be tailored to demonstrated risks, not theoretical fears.
Regulatory boundaries were clarified. Agencies like the RBI have substantial power, but cannot accomplish through circulars what requires parliamentary legislation.
What’s Next for India’s Crypto Future
Despite the clarity, significant questions remain. The government has repeatedly signaled interest in comprehensive cryptocurrency legislation. Various draft bills have circulated—some proposing bans on private cryptocurrencies, others suggesting central bank digital currency frameworks. No comprehensive law has been enacted.
This creates ongoing uncertainty. The current framework—legal to trade but heavily taxed, recognized but closely watched—represents a temporary equilibrium rather than settled policy.
As major economies including the US and EU develop clearer regulatory frameworks, India faces questions about whether its approach encourages or discourages blockchain innovation within the country.
The Bottom Line
The 2020 Supreme Court decision marked India’s shift from attempted crypto prohibition to regulated acceptance. Rather than elimination, the country chose evolution—allowing the industry to develop under supervision.
What the Court established definitively: any future restrictions must come through proper legislative channels, respect fundamental economic rights, and meet proportionality standards with demonstrated necessity.
For cryptocurrency markets, it marked the difference between being banned and being regulated—a pivotal moment that continues shaping India’s digital economy today.