In India, stablecoins are classified as Virtual Digital Assets (VDAs) under the Income Tax Act. This classification applies regardless of whether the stablecoins are pegged to the Indian Rupee (INR) or global currencies like the USD. However, it's important to note that India currently operates in a regulatory gray zone regarding stablecoins. As of early 2025, no specific legislation or RBI circular directly governs stablecoins. This means stablecoins are not banned, but they lack official regulatory recognition. Companies and individuals operating with stablecoins must instead rely on existing foreign-exchange, tax, and anti-money-laundering laws to determine what's permissible. Under India's current framework, stablecoin transactions are subject to specific tax rules: a 30% flat tax on profits from the transfer of stablecoins, a 1% Tax Deducted at Source (TDS) on transactions above specified thresholds, and no set-off of VDA losses is permitted. Additionally, exchanges and businesses dealing in stablecoins must register with the Financial Intelligence Unit (FIU-IND), and KYC (Know Your Customer) and travel rule compliance are mandatory. The Reserve Bank of India has expressed consistent concerns about stablecoins, particularly regarding their potential to undermine monetary sovereignty and interfere with the central bank's control over money supply. However, the RBI has not imposed a direct ban on stablecoins, instead focusing on taxation and anti-money-laundering compliance. India is not currently pursuing comprehensive digital asset legislation. Instead, the government is likely to maintain limited oversight due to concerns that fully incorporating digital assets into the broader financial system could create systemic risks. The Indian government is considering rationalizing the 1% TDS rule, which could boost adoption. Additionally, the Digital Rupee (e-rupee CBDC) may eventually coexist with private stablecoins in India's digital payment ecosystem.