Is P2P legal in India?

This question gets asked because people conflate three different things: whether an activity is *banned*, whether it is *regulated*, and whether it is *risky*. P2P in India is not banned. It is partly regulated and it carries a specific risk that has nothing to do with legality.

P2P crypto trading

Legal. There is no law in India prohibiting the purchase, sale or holding of crypto assets by individuals. The Supreme Court struck down the RBI's banking restriction in 2020, and the Government's own position since the 2022 Finance Act has been to tax the activity rather than ban it — which is not something a state does with an illegal act.

• Taxed at 30% on gains from virtual digital assets, with no deduction other than cost of acquisition.
• 1% TDS on the transfer of a virtual digital asset, deducted at source by the buyer or the platform.
• Losses cannot be set off against other income, or carried forward.
• Not legal tender. You cannot demand that anyone accept crypto as payment.
• Platforms must register with FIU-IND as reporting entities under the anti-money-laundering framework.

The detail on each of these is in the crypto tax India guide and the 1% TDS explainer.

The risk that actually bites

Almost nobody who gets into trouble over a P2P trade gets into trouble for trading. They get into trouble because rupees that landed in their account are later traced to a cyber-fraud victim. The account gets a lien, the trader has to prove the credit was consideration for a documented trade, and the fact that the trade itself was legal does not make the lien go away on its own.

This is a provenance problem, not a legality problem, and the defence against it is evidence: a named counterparty, an order ID, a chat log and an on-chain hash for every trade. What to do if your account is frozen covers the recovery steps in order.

P2P lending

Legal, but only through a platform holding an NBFC-P2P registration from the Reserve Bank of India. Lending outside that framework as a business is not.

The RBI tightened its Master Directions for these platforms in August 2024. The changes worth knowing as a lender:

• A lender's aggregate exposure across all P2P platforms is capped at ₹50 lakh.
• Lending more than ₹10 lakh requires a chartered accountant's certificate confirming a minimum net worth of ₹50 lakh.
• Platforms are prohibited from offering any guarantee or credit enhancement. They cannot promise you a return.
• Platforms cannot hold your funds beyond one business day before disbursing them.
• All credit risk sits with the lender. If the borrower defaults, the platform owes you nothing.

P2P payments over UPI

Obviously legal — it is the ordinary use of a bank account. The only thing worth knowing is that banks and NPCI treat person-to-person transfers differently from merchant payments, with different limits and different risk scoring. What P2P means in UPI has the detail.

So what is actually not allowed

• Running an exchange for Indian users without FIU-IND registration. This is what led to offshore platforms being blocked in India — see the FIU timeline.
• Not paying the tax. The 30% and the 1% TDS are not optional, and exchange reporting means the department can see the trades.
• Accepting or passing on money you know to be tainted. This is where an ordinary trade turns into a proceeds-of-crime question.
• Lending commercially outside the NBFC-P2P framework.