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Summary of tax laws in India
For the fiscal year 2024-2025, Indian taxation legislation considers cryptocurrencies as virtual digital assets (VDAs) per the Income Tax Act, 1961. Section 2(47A) clarifies its definition: Any code, number, token, or segment of data generated via cryptography qualifies as a VDA. The sole exception is cash itself—Indian rupees or any nation’s fiat currency.
VDAs include cryptocurrencies such as Bitcoin (BTC) and Ether (ETH), in addition to non-fungible tokens (NFTs) and related digital tokens. While it is lawful to purchase, sell, and hold VDAs, they are not acknowledged as legitimate forms of payment.
Put differently, cryptocurrency exists in a legally unclear environment in India in 2025. It is allowed but is closely observed for taxation and anti-money laundering (AML) objectives.
Numerous organizations in India supervise crypto transactions. The Income Tax Department enforces tax adherence, guided by the Central Board of Direct Taxes (CBDT) under the Ministry of Finance, which formulates tax regulations.
Meanwhile, the Financial Intelligence Unit (FIU-IND) guarantees platforms comply with AML criteria, while the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) shape more extensive regulatory frameworks.
These agencies collaborate to supervise crypto taxation within the nation.
The Income Tax (No. 2) Bill, 2025, obtained presidential approval on Aug. 22, 2025, consequently replacing the Income Tax Act, 1961.
Taxable occurrences for crypto traders in India
India categorizes crypto transactions under a distinct tax regime, implementing a flat 30% tax on profits derived from transfers and a 1% tax deducted at source (TDS) applied to all transactions, irrespective of profitability.
A taxable occurrence in crypto refers to any action that generates a tax obligation under Indian law. This encompasses transactions that yield income, profits, or tangible advantages in fiat currency. If you engage in trading or investing, recognizing what constitutes a taxable event is crucial for adhering to the Income Tax Act.
Significant taxable occurrences include:
- Trading: Converting crypto for another crypto or fiat currency is subject to tax.
- Staking rewards: Considered as income upon receipt.
- Airdrops and hard forks: Regarded as income once tokens are credited.
- Mining income: Taxable as income, with subsequent sales liable to capital gains tax.
- Payments in crypto: Classified as taxable business or professional income.
Non-taxable occurrences involve possessing digital assets without engaging in sales or transferring crypto between personal wallets. Since these actions do not result in income or profits, they are exempt from taxation.
Did you know? Indian legislation does not provide any tax relief if you suffer losses due to theft or hacks of your crypto. Failure to comply may lead to penalties, interest, and prosecution for deliberate evasion.
Crypto tax rates and classifications
In India, earnings from cryptocurrencies are mainly classified as either business income or capital gains. If trading occurs regularly and methodically, the profits are subject to taxation as business income under standard income tax brackets. For most personal investors, gains from purchasing and divesting cryptocurrencies are viewed as capital gains.
Starting Aug. 22, 2025, both short-term capital gains (STCG) and long-term capital gains (LTCG) on VDAs are taxed at a flat rate of 30% per Section 115BBH.
This regulation applies regardless of the duration the assets are held. Deductions are not permitted, aside from the acquisition cost, and losses from one VDA cannot be balanced against another or carried into the next fiscal year.
Business income from crypto is taxed at slab rates but often encounters a similar tax encumbrance due to the flat 30% rate applicable to VDAs.
Furthermore, a 1% TDS is imposed on all crypto transactions exceeding a certain limit to promote transparency and compliance across platforms. This includes trades on centralized exchanges and peer-to-peer (P2P) transactions.
TDS on VDAs in India
The taxation framework in India for cryptocurrencies includes a 1% TDS per Section 194S. This obligatory deduction affects most VDA transactions and was introduced to enhance compliance and observe the growing crypto market. The primary features of crypto TDS include:
- TDS mechanism: When acquiring a VDA, the purchaser deducts a fixed fraction of the sale price as TDS and remits it to the government. This deducted sum constitutes the tax withheld from the seller’s payment.
- TDS rate and threshold: Section 194S mandates a 1% TDS on the sale price if transactions surpass 50,000 Indian rupees in a financial year. In particular circumstances, this threshold is reduced to 10,000 rupees.
- TDS for non-cash transactions: If a buyer procures a VDA using another VDA (non-cash payment), they are obliged to deduct 1% TDS in cash based on the sale value and submit it to the government.
- Mixed payment scenarios: When a buyer pays for a VDA with a combination of cash and non-cash (e.g., another VDA), and the cash part is inadequate to cover the 1% TDS, the buyer must pay the additional TDS from their own resources.
- No TAN requirement for specified persons: Under Section 203A, a “specified person” (as outlined by the law) is not obligated to obtain a tax deduction and collection account number (TAN) for TDS purposes.
- TDS exemption for specified persons: No TDS is withheld for a specified person if the total VDA consideration in a financial year is 50,000 rupees or less.
- TDS exemption for non-specified persons: For individuals other than specified persons, no TDS is deducted if the VDA consideration amounts to 10,000 rupees or less in a financial…
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year. - Priority over e-commerce regulations: If a VDA transaction is governed by both Section 194S and Section 194-O (pertaining to e-commerce operators), the guidelines of Section 194S take precedence.
- TDS on interim or temporary accounts: If the purchaser places the VDA payment into an interim or temporary account of the seller, the seller bears the obligation to deduct the TDS.
Did you know? Utilizing foreign exchanges does not absolve traders’ profits from overseas platforms. They must report their transactions in Indian ITRs, potentially inviting FEMA examination.
How to compute crypto taxes in India
To compute crypto taxes in India, you first need to establish the cost basis, which is the acquisition price of the VDA plus relevant expenses like exchange or transaction fees. This forms the groundwork for calculating gains or losses when the asset is sold or transferred.
Traders might employ techniques such as first-in-first-out (FIFO), last-in-first-out (LIFO), or specific identification to monitor transactions, based on the precision of their records. The selected approach influences the calculation of taxable gains and must be applied uniformly.
In crypto-to-crypto exchanges, the transaction is viewed as selling one asset (triggering gains or losses) and acquiring another, with both assessed at their fair market price in rupees at the time of exchange.
Certain expenses, such as transaction fees, wallet or exchange costs and crypto tax software expenses, may be included in the cost of acquisition. However, Indian law does not permit broader deductions beyond these acquisition costs.
Crypto tax reporting and compliance obligations in India
Indian tax legislation mandates the reporting of crypto transactions, with no exemptions for losses. Income must be reported under the VDAs category. ITR-2 generally encompasses capital gains, while ITR-3 pertains to business income. Starting from FY 2025-26, a new Schedule VDA will necessitate the individual reporting of each crypto transaction.
Taxpayers are required to maintain accurate records, including transaction specifics, exchange statements, wallet addresses, and rupee valuations, to substantiate their filings. These records are essential, especially during audits or examinations.
For individuals not requiring an audit, the due date for filing income tax returns in 2025 is July 31, 2025. Businesses needing an audit must submit by Oct. 31, 2025.
Failure to comply can result in penalties, such as interest on outstanding taxes, fines for late submissions, and potential legal action for intentional tax evasion. Thus, prompt and precise reporting is vital for crypto traders and investors.
Did you know? Gifts in crypto are taxable if their worth exceeds 50,000 rupees, unless given by relatives or during specific exempt circumstances.
Challenges and typical issues for crypto traders in India regarding taxation
Taxation represents a complex challenge for crypto traders in India due to shifting regulations and uncertain clarity in specific areas of the crypto landscape. Although profits from VDAs are taxed, various challenges contribute to confusion and difficulties in compliance.
Primary challenges include:
- Ambiguity in tax regulations for DeFi and NFTs: Guidelines for staking, lending, and NFT sales remain vague, leading to inconsistent reporting.
- Monitoring high-frequency trades across various platforms: Frequent trading on multiple exchanges complicates the accurate calculation of gains and record-keeping.
- Tax ramifications of cross-border transactions: Utilizing foreign exchanges or wallets introduces issues related to the Foreign Exchange Management Act, 1999 (FEMA), double taxation, and international reporting mandates.
- Addressing lost or stolen crypto assets: Indian tax law provides no relief for theft or loss, leaving traders uncertain about how to report such occurrences in their filings.
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