In recent times, thousands of Indians have reported a shocking problem — their UPI or bank accounts getting frozen after selling USDT or Bitcoin, especially through platforms like Binance, Bybit, or OKX.

This has created panic among genuine crypto users who believe crypto selling itself is illegal in India. The truth is more nuanced.

This article explains why UPI/bank accounts get frozen after crypto selling, how the system works, and what you can do to avoid or resolve it.

Is Crypto Selling Illegal in India?

No. Cryptocurrency trading is not illegal in India.

The Indian government:

• Taxes crypto at 30% on profits

• Applies 1% TDS on transactions

• Recognizes crypto as a Virtual Digital Asset (VDA)

So, selling Bitcoin or USDT is legal.
Then why are bank accounts getting frozen?

The Real Reason Behind UPI & Bank Account Freezes

The problem does not arise from crypto itself, but from how money is received, especially in P2P (Peer-to-Peer) transactions.

1. Fraud-Linked Money Trail

Most freezes happen when:

• You sell crypto via P2P

• Buyer pays you through UPI/IMPS

• That buyer’s bank account is later flagged for fraud

When cybercrime authorities trace stolen or scam money, everyone in the transaction chain gets flagged, including innocent crypto sellers.

👉 Banks freeze accounts first, investigate later.

2. High Risk of P2P Transactions

On global exchanges:

• Buyers are often unknown individuals

• Payments may come from mule or third-party accounts

• Many buyers operate multiple UPI IDs

Banks don’t see “crypto trade” — they only see:

Repeated large credits from unknown sources

This triggers AML (Anti-Money Laundering) alerts.

3. Cyber Crime & Money Laundering Flags

Once flagged, your account may be marked under:

• Cyber Crime Investigation

• Suspicious Transaction Report (STR)

• PMLA (Prevention of Money Laundering Act)

Even if you did nothing wrong, the freeze still happens automatically.

4. Frequent or Large UPI Credits

Red flags include:

• Multiple UPI credits of ₹50,000 to ₹5,00,000

• Payments from different names every day

• Sudden spike in account activity

These patterns resemble illegal money circulation, prompting banks to act.

What Exactly Gets Frozen?

Depending on severity:

• ❌ UPI services disabled

• ❌ Debit transactions blocked

• ❌ Credit withdrawals stopped

• ❌ Entire account frozen (debit + credit)

Sometimes, all accounts linked to the same PAN may be restricted.

How to Unfreeze Your Bank Account After Crypto Selling

Step 1: Visit Your Bank Branch Immediately

Carry:

• Aadhaar & PAN

• Bank passbook or statement

• Crypto transaction screenshots (Binance/Bybit)

• P2P order details

• Chat history with buyer

Step 2: Ask for Exact Freeze Reason

Request:

• Freeze reference number

• Cyber complaint or FIR number (if any)

• Name of police station or authority involved

This information is crucial.

Step 3: Cooperate With Cyber Cell (If Required)

If cybercrime is involved:

• Submit written explanation

• Prove source of funds

• Clarify that money was received for crypto sale

In many cases, innocent users are cleared after verification.

Step 4: Submit Declaration & Undertaking

Banks may ask for:

• Self-declaration of income source

• Undertaking to avoid risky P2P transactions

• Updated KYC

⏳ Resolution Time

• Simple cases: 7–15 days

• Cyber-linked cases: 1–3 months

How to Avoid UPI Freeze in Future

✅ Safer Alternatives

• Use Indian crypto exchanges (CoinDCX, ZebPay, WazirX)

• Withdraw funds directly to linked bank accounts

• Pay applicable tax and TDS

❌ What to Avoid

• Random P2P buyers

• Third-party UPI payments

• “Friend will pay” excuses

• High-volume daily P2P selling