Type 2 diabetes mellitus (T2DM) and nonalcoholic fatty liver disease (NAFLD) are linked to the global diabetes epidemic, leading to increased disease progression and adverse health outcomes. The renaming of NAFLD to metabolic dysfunction-associated steatotic liver disease (MASLD) at the 2023 European Association for the Study of the Liver Congress highlights the complex relationship between metabolic disorders and liver health. Taking this into consideration, we aimed this study to identify prevalence and risk factors associated with the stages of NAFLD in individuals with T2DM in the Indian population. This observational, cross-sectional study was conducted on 1,521 T2DM patients at Dr Panikar's Speciality Care Centre, Mumbai, between September 1, 2022 and October 31, 2022. Demographic parameters such as age, gender, height, weight, and anthropometric parameters such as body mass index (BMI) and waist circumference were measured. Liver fibrosis and steatosis stages were identified by vibration-controlled transient elastography (VCTE) using FibroScan®. The prevalence of liver steatosis was 75.1% among the 1,521 diabetes cases [S0 (24.9%), S1 (15.1%), S2 (24%), and S3 (36%)], whereas the prevalence of liver fibrosis was 28.0% [F0 (72%), F1 (19%), F2 (5%), F3 (1.5%), and F4 (3.4%)]. The S1 (p = 0.012), S3 (p = 0.001), F1 (p = 0.001), and F2 (p = 0.001) grades showed significant gender-related changes, demonstrating a positive connection. Furthermore, waist circumference was associated with disease severity in both liver steatosis and fibrosis stages (p = 0.001), but BMI was solely associated with the degree of steatosis (p = 0.001). The mean age differences between these categories, however, did not reach statistical significance (p-values of 0.149 and 0.078, respectively, for the steatosis and fibrosis grades). The study reveals a high prevalence of NAFLD (steatosis and fibrosis) in T2DM patients, increasing the risk of advanced fibrosis. In T2DM patients with risk factors including waist circumference and BMI, appropriate screening and intervention are required.