Is USDT P2P Trading Legal in India? Rules, TDS and FIU-IND Explained (2026)
Yes — buying and selling USDT peer-to-peer is legal in India. It is taxed at 30% on gains, carries a 1% TDS that the buyer usually deducts in a direct P2P trade, and platforms must register with FIU-IND. Here is exactly how the rules apply to P2P.
Is USDT P2P trading legal in India? Yes. No Indian law bans buying, holding or selling USDT, and that includes peer-to-peer trades where you pay or get paid in rupees by UPI or bank transfer. India taxes and regulates crypto instead of prohibiting it: gains are taxed at 30%, a 1% TDS applies to transfers above a threshold, and platforms that serve Indian users must register with the Financial Intelligence Unit (FIU-IND).
P2P adds a few wrinkles the general rules do not spell out — especially who deducts the TDS. This guide covers each point as it applies to a P2P trade.
Why is crypto legal in India?
In March 2020 the Supreme Court set aside the Reserve Bank of India's 2018 circular that had stopped banks from serving crypto businesses (Internet and Mobile Association of India v. Reserve Bank of India). Since then no law has banned crypto. The Finance Act 2022 instead created a tax regime for 'virtual digital assets' (VDAs), which treats them as a legal, taxable asset class.
In March 2023 the government brought VDA service providers under the Prevention of Money Laundering Act (PMLA). Exchanges, wallets and similar platforms serving Indians must register with FIU-IND as reporting entities, follow KYC rules and report suspicious transactions.
Is Binance P2P — or any P2P platform — legal in India?
Using a P2P platform is legal; what matters is whether the platform follows Indian rules. The FIU has enforced registration: it approved Binance's registration in May 2024 and fined it ₹18.82 crore for operating without meeting its PMLA obligations, and Bybit registered in 2025 after agreeing to a ₹9.27 crore fine. India's finance ministry has said around 50 crypto exchanges have registered with the FIU.
For a user, the practical check is simple: does the platform verify your identity, keep records of your trades, and say it is registered with FIU-IND? A platform that skips KYC entirely is the one to avoid.
How is P2P USDT taxed?
Gains on transferring USDT are taxed at a flat 30% under Section 115BBH, plus surcharge and 4% cess, whatever your income slab. Only the cost of acquisition can be deducted, and losses cannot be set off against other income or carried forward. You report these transactions in Schedule VDA of your income tax return.
Because USDT tracks the dollar, gains are usually small and come from the rupee moving or from the spread between buying and selling. They are still taxable, and the paperwork applies even when the profit is tiny.
Who deducts the 1% TDS in a P2P trade?
Section 194S puts a 1% TDS on payments for VDA transfers. When you trade on an exchange, the exchange generally handles it. In a direct peer-to-peer trade, the obligation sits with the buyer: the person paying rupees for USDT deducts 1% and deposits it with the government, so the seller receives credit for it.
Thresholds apply per financial year: ₹50,000 for 'specified persons' (broadly, individuals and HUFs without business income, or with turnover under ₹1 crore or professional receipts under ₹50 lakh) and ₹10,000 for others. Specified persons deposit TDS through Form 26QE on the income tax portal without needing a TAN; other deductors use Form 26Q. Without the seller's PAN, the rate rises to 20%. Failing to deduct can attract a penalty equal to the tax not deducted.
What can get a P2P trader into trouble?
The legal risk in P2P is rarely the trade itself — it is the money trail. Accepting payments from accounts that are not the buyer's own, trading for strangers who later turn out to be moving fraud proceeds, or not reporting gains are what cause problems. The most common practical consequence is a bank account frozen after a cyber-fraud complaint, which is why name-matched payments and full trade records matter so much.
This guide is general information, not tax or legal advice. Tax treatment can change with each Union Budget, so check the Income Tax Department's guidance or a chartered accountant before filing.