Crypto Regulation in India: Why Fraud Cases Are Increasing

Crypto Regulation India, Crypto Fraud Cases, FIU-IND, Digital Asset Tax India, Investment Scams

India sits at the center of the global crypto story for two reasons that pull in opposite directions: massive adoption and a still-evolving market. Chainalysis ranked India at the top of its 2025 Global Crypto Adoption Index, highlighting how quickly retail participation has scaled. 

At the same time, India has not enacted a single, comprehensive “crypto law” that clearly defines what crypto is (security, commodity, payment instrument), which agency regulates which activity, and what protections consumers can reliably expect. 

That gap is one reason fraud is rising, not because “crypto causes scams,” but because uncertainty creates space for criminals to operate across platforms, jurisdictions, and payment rails.

What India has Regulated so Far (and what it hasn’t)

India’s approach has largely been risk-first rather than market-building.

1. Heavy taxation without a full market framework: Crypto and other “virtual digital assets” (VDAs) are taxed at a flat rate on gains, and transfers face transaction-level TDS requirements introduced in the 2022 budget. This made crypto activity visible to tax enforcement in theory, but it did not automatically create investor protections like dispute resolution, custody standards, or advertising rules.

https://cis-india.org/internet-governance/blog/what-does-the-2022-finance-bill-mean-for-crypto-assets-in-india

2. Anti-money laundering (AML) coverage via FIU-IND: A major regulatory step came when VDA service providers were brought under India’s AML framework (PMLA-related obligations), making many crypto intermediaries “reporting entities” with KYC, recordkeeping, and suspicious transaction reporting expectations. FIU-IND has issued registration circulars and detailed AML/CFT guidelines for VDA service providers.

https://fiuindia.gov.in/pdfs/downloads/VDASP04072023.pdf

3. Enforcement actions against offshore exchanges: India has also targeted offshore VDA platforms for non-compliance, including FIU-IND notices to multiple offshore VDA service providers under the PMLA framework.

https://www.pib.gov.in/PressReleasePage.aspx?PRID=2173758

What Remains Unclear?

India still lacks a unified solution that answers practical questions: Which tokens are “securities”? What are the licensing requirements for exchanges, brokers, influencers, wallet providers, and token issuers? What are mandatory consumer disclosures? What compensation exists if a platform fails? This “regulated in parts, undefined as a whole” environment is exactly what fraud networks exploit.

Why Fraud Cases are Increasing

1. Scams scale faster when the rules are fragmented

When regulation is split across taxation, AML compliance, and cybercrime response (rather than a single market conduct framework), scammers can keep shifting surfaces:

• They advertise like investment advisors, but are not regulated as such.
• They take money via UPI/bank transfers, then route value into crypto to move it quickly and across borders.
• They use offshore apps and Telegram/WhatsApp funnels where takedowns are slower, and identity checks are weaker.

India’s broader cybercrime trend supports this context: cybersecurity incidents reported have surged (for example, government communications point to a sharp rise from 2022 to 2024). 

And cybercrime losses in 2025 were reported at a very large scale, with investment-style frauds a major contributor. 

Crypto is often the exit rail, even when the scam begins as a stock tip, VIP trading group, or guaranteed returns pitch.

2. The “investment scam” playbook now uses crypto as the settlement layer

Recent cases reported across Indian cities follow a familiar pattern: victims are pulled into fake trading platforms, shown fake profits, and then blocked or asked for extra tax/fees at withdrawal time. The fraudsters frequently rely on:

• Mule accounts (accounts opened using paid rent-a-KYC arrangements),
• Payment aggregators/wallet routes, and
• Crypto conversions to launder or move proceeds.

Law enforcement reporting around mule-account ecosystems underscores how industrialized these networks have become.

https://timesofindia.indiatimes.com/city/vijayawada/cyber-fraudsters-dupe-2-vizag-residents-of-over-rs-3-crore/articleshow/128681137.cms

3. Faster Digital Payments = Faster Fraud, Even if Recovery Systems are Improving

India’s real-time payments ecosystem makes moving money easy, which is great for commerce and also ideal for criminals. The key point is that fraud is rising alongside reporting and mitigation capacity. 

For example, a Rajya Sabha committee report notes that coordination between NPCI, Banks, RBI, and Law enforcement helped save approximately Rs. 280 crore between January 2023 and June 2025 through fraud tracking and protective actions. 

That’s progress, but it also signals the scale and frequency of attempted fraud.

4. Global Crypto Crime and AI-enabled Impersonation are Boosting Local Fraud

Chainalysis has repeatedly warned that scam ecosystems are professionalizing, and its reporting highlights large-scale illegal flows and scam infrastructure trends. 

TRM Labs similarly reports high illegal volumes globally (even when the illegal share of total volume may fluctuate).

These global dynamics matter locally because many India-targeting scam operations are transnational: the front-end is a WhatsApp/Telegram funnel, but the infrastructure (domains, payment coordinators, wallets, OTC conversions) often spans jurisdictions.

5. Mixed Public Messaging Creates a “Trust Gap” that Criminals Exploit

RBI has long cautioned users about legal, operational, and consumer protection risks tied to virtual currencies, and senior RBI leadership continues to emphasize macro and illegal-finance concerns in more recent commentary.

But for everyday users, the signal can feel contradictory: Crypto is taxed and exchanges may operate under AML rules, so it must be safe. 

Scammers weaponize that ambiguity to appear legitimate (FIU-compliant, India-approved, Registered platform), even when those claims are false or misleading.

What Would Reduce Fraud (Policy + Consumer Protections)

A practical anti-fraud roadmap typically includes:

• Clear token classification + licensing: Define which activities require licensing/registration (exchange, brokerage, custody, staking, issuance), and who supervises market conduct.
• Advertising and influencer standards: Mandatory risk disclosures, ban on guaranteed-return claims, and enforceable accountability for paid promotions.
• Custody and proof-of-reserves norms: Standards for segregation of client assets, audits, incident reporting, and recovery processes.
• Tighter on/off-ramp controls: Deeper analytics on Mule accounts, faster freezing workflows, and standardized reporting across banks and fintechs.
• User-facing safety defaults: Transaction warnings, verified identities for high-risk promotions, and coordinated takedowns of scam domains/groups.

India already has pieces of this puzzle in AML supervision and cybercrime response; the next step is integrating those pieces into a coherent market framework that reduces the grey zone scammers thrive in.

https://www.rbi.org.in/commonman/English/scripts/PressReleases.aspx?Id=2152

Conclusion

Crypto adoption in India is accelerating, but regulation remains fragmented and incomplete. While taxation rules and AML oversight through FIU-IND have increased visibility, the absence of a unified legal framework has created grey areas that fraudsters exploit.

Rising digital payments, cross-border scam networks, mule account ecosystems, and AI-driven impersonation tactics have further amplified investment-related crypto fraud cases.

To curb the surge, India needs clearer classification of digital assets, stronger licensing norms, stricter advertising oversight, and faster coordination between banks, exchanges, and law enforcement.