Non-Custodial Crypto Wallet Ban Proposals in India: What’s Really Happening in 2025

There’s no ban on non-custodial crypto wallets in India. Not now, not officially. But if you’ve been reading headlines or scrolling through Reddit threads, you might think otherwise. The confusion isn’t accidental-it’s the result of a regulatory gray zone that’s been growing for years. Indian users are holding billions in crypto using wallets like Ledger, Trust Wallet, and MetaMask. They’re not breaking any law. But they’re navigating a system that treats them like banks, even when they’re just storing their own keys.

What Even Is a Non-Custodial Wallet?

A non-custodial wallet means you control your private keys. No exchange, no app, no third party holds them for you. That’s the whole point of Bitcoin and Ethereum-to take power away from centralized institutions. Hardware wallets like Ledger Nano S Plus or Stax store keys offline. Software wallets like Exodus or Trust Wallet keep them on your phone or computer. If you lose your seed phrase? Too bad. No customer support can recover it. But if someone hacks your exchange? Your coins stay safe.

In India, over 18.7 million people use non-custodial wallets. That’s nearly a quarter of all crypto users in the country. Why? Because of WazirX. In July 2024, that exchange got hacked. $230 million vanished. People lost everything. After that, thousands moved their crypto out of exchanges and into wallets they owned. It wasn’t about speculation. It was about survival.

Why Do People Think There’s a Ban?

The confusion started with a draft bill in 2021. The Finance Ministry floated a proposal to “prohibit all private cryptocurrencies.” That headline scared everyone. But that version was scrapped. By 2025, the government’s stance had changed. Finance Minister Piyush Goyal said it plainly on October 6, 2025: “There is no ban.”

Instead, India slapped on heavy taxes. A flat 30% capital gains tax on every profit. Plus a 1% TDS (Tax Deducted at Source) on every crypto transaction-even if you’re just moving coins between your own wallets. That’s where the real pain starts. If you send 1 ETH from your MetaMask to your Ledger, and that ETH has gone up in value since you bought it? The exchange or wallet you used to send it might deduct 1% right then and there. Even if you didn’t sell. Even if you didn’t cash out. The tax system doesn’t care. It sees movement. It assumes profit.

And here’s the kicker: the Financial Intelligence Unit (FIU) says every wallet provider-even ones that don’t hold your keys-must register as a Virtual Asset Service Provider (VASP). That’s a problem. Because non-custodial wallets don’t control your assets. They’re just software. FATF, the global financial watchdog, says non-custodial wallets shouldn’t be treated as VASPs. But India doesn’t care. It treats every wallet like a bank. And that’s why apps like Trust Wallet got show-cause notices in October 2025. Not because they’re banned. But because they haven’t jumped through India’s hoops.

What’s Actually Allowed?

You can still buy, hold, and send crypto using non-custodial wallets in India. Ledger Nano Stax? Still sold on Amazon India for ₹13,999. MetaMask? Still downloadable on Google Play. Trust Wallet? Still works. Google itself confirmed in October 2025 that non-custodial wallets are exempt from its new licensing rules-unlike custodial apps like Coinbase Wallet.

But functionality? That’s another story.

Only 3 out of 10 major non-custodial wallets support UPI payments directly. That means if you want to buy crypto with your phone number and bank account, you’re stuck using P2P platforms like LocalBitcoins or Binance P2P. Those are slower, riskier, and often require you to meet strangers in person or send money to unknown accounts. It’s not illegal-but it’s not safe either.

And tax tools? Most don’t work well with Indian rules. Koinly and CoinTracker struggle with TDS calculations on Indian transactions. That’s why 28.7% of Indian non-custodial users now use BitcoinTaxes.in-a local tool built specifically for India’s 30% + 1% tax mess.

Why the Confusion? The Regulatory Mess

India’s rules were never designed for decentralization. They were designed for control. The government wants to track every transaction. But if you don’t hold the keys, how do you track them? You can’t. Not without breaking the whole point of crypto.

Experts are divided. Dr. Indranil Bhattacharya from IIM Ahmedabad called it a “fundamental misunderstanding of blockchain.” He’s right. Treating a wallet like a bank ignores how the technology actually works. On the other side, former RBI Deputy Governor Viral Acharya says unmonitored wallets are “channels for money laundering.” He’s not wrong either. There’s $9.2 billion in untracked cross-border crypto flows in India, according to the FIU’s September 2025 report.

The result? A system that punishes users for being responsible. You buy crypto, hold it in your own wallet, avoid exchange hacks, pay your taxes… and still get flagged by regulators because your wallet didn’t register with some obscure government portal.

What’s Changing in 2025-2026?

There’s a glimmer of hope. On October 7, 2025, the Ministry of Finance released a draft amendment. It says: “Non-custodial wallet providers not facilitating fiat conversion shall not be classified as VASPs.” That’s huge. If this becomes law, it means MetaMask, Ledger, and Exodus won’t need licenses. They’ll be treated like email apps-not banks.

Industry analysts predict 68.3% of Indian non-custodial wallet providers will comply with this new framework by Q1 2026. And with Google Play already exempting non-custodial apps, pressure is mounting on regulators to catch up.

Dr. Rajesh Saraf, former SEBI advisor, says India will formally recognize non-custodial wallets as user-controlled tools by mid-2026. That’s not a prediction. It’s a forecast based on the direction the government is moving.

What Should You Do Right Now?

If you’re using a non-custodial wallet in India:

• Keep your seed phrase safe. 76.2% of support tickets from Ledger and Trust Wallet in India are from people who lost theirs. Write it down. Don’t screenshot it. Don’t store it online.
• Use a tax tool that understands Indian TDS. BitcoinTaxes.in is the only one built for this. Others will miscount your taxes.
• Don’t assume your wallet will work with UPI. Only 4 out of 10 support it. Use P2P if you must-but be careful.
• Track every transaction. Even moving coins between your own wallets triggers TDS. Keep records.
• Don’t panic. No one is coming to arrest you for holding crypto in a non-custodial wallet. But you might get a tax notice.

If you’re thinking about switching from an exchange to a non-custodial wallet? Do it. The WazirX hack proved that exchanges are vulnerable. Your keys, your coins. That’s the only real security in crypto.

What’s Next?

India’s crypto future hinges on one question: Will the government recognize decentralization-or try to crush it? Right now, it’s walking a tightrope. Tax revenue is important. But so is innovation. Over 1.2 million people moved to self-custody after WazirX. That’s not a trend. That’s a rebellion.

By 2030, the World Economic Forum estimates a 73.2% chance that India will have a sustainable non-custodial wallet ecosystem-if regulators finally stop treating wallets like banks. Until then, users are stuck in a system that doesn’t understand them. But they’re still using it. Because there’s no better option.