Understanding Crypto Tax in India: Rules, Rates, and Compliance in 2025

Over the last few years, cryptocurrencies have moved from being an obscure digital experiment to a mainstream investment class. Whether it’s Bitcoin, Ethereum, or meme coins like Shiba Inu, Indian investors have jumped into the crypto wave with enthusiasm.

But along with popularity came the question: How are crypto profits taxed in India?

The Indian government has now made its stance clear — all income from cryptocurrencies is taxable. If you trade, sell, or even gift crypto assets, you are liable to pay tax. Here’s a complete breakdown of how crypto tax in India works in 2025 and what every investor should know before filing their return.

What Is the Legal Status of Cryptocurrency in India?

Cryptocurrency is not illegal in India — but it is not recognized as legal tender either. Instead, the Income Tax Department classifies crypto as a Virtual Digital Asset (VDA) under Section 2(47A) of the Income Tax Act.

This category includes:

Cryptocurrencies such as Bitcoin, Ethereum, Solana, and Polygon
Stablecoins like USDT and USDC
Non-Fungible Tokens (NFTs)
Any other blockchain-based digital tokens

So while you cannot use crypto as an official currency to buy or sell goods freely, you can trade or hold it as an investment, subject to taxation.

How Is Crypto Taxed in India?

Since April 1, 2022, crypto tax in india has been governed by Section 115BBH of the Income Tax Act. The rules are straightforward but strict:

1. Flat 30% Tax on Profits

Any income earned from transferring or selling crypto assets is taxed at a flat 30% rate, regardless of your income tax slab.

For example, if you earn ₹1,00,000 as profit from trading Bitcoin, you’ll pay ₹30,000 in tax, plus surcharge and cess.

2. No Deductions Allowed

You can’t claim expenses like exchange fees, electricity costs for mining, or internet charges as deductions. The only deduction allowed is the cost of acquisition (the price you paid for buying the asset).

3. 1% TDS on Crypto Transactions

Under Section 194S, a 1% Tax Deducted at Source (TDS) is levied on all crypto transactions. This applies each time you sell or transfer your digital assets, whether through an Indian exchange or P2P platform.

This TDS amount can be adjusted later against your final tax liability when filing your Income Tax Return (ITR).

4. No Set-Off or Carry Forward of Losses

Losses from crypto transactions cannot be adjusted against any other income — even other crypto gains. Also, you cannot carry forward these losses to the next financial year.

5. Tax on Crypto Gifts

If you receive cryptocurrency as a gift, it will be taxed under ‘Income from Other Sources’, unless it’s from a relative or on specific exempt occasions (like marriage).

When Does Crypto Become Taxable?

You must pay tax whenever you:

Sell crypto and receive INR or another asset
Exchange one cryptocurrency for another (e.g., ETH for BTC)
Spend crypto to buy goods or services
Earn crypto through mining, staking, or as payment for services
Receive crypto as a gift or reward

Each of these transactions is considered a taxable event under Indian law.

Reporting Crypto Income in Your ITR

The Income Tax Department now requires full disclosure of crypto transactions. You must report crypto income under Schedule VDA while filing your ITR.

Steps include:

Collect transaction details such as purchase and sale dates, amounts, and prices.
Classify your income correctly — either as business income (for frequent traders) or capital gains (for investors).
Reconcile all crypto-related TDS entries using Form 26AS.
File your return before the due date to avoid penalties or scrutiny.

Example: Crypto Tax Calculation

Let’s say you buy Ethereum for ₹2,00,000 and sell it for ₹3,00,000.

Profit: ₹1,00,000
Tax @30%: ₹30,000
Health & Education Cess (4%): ₹1,200
Total Tax Payable: ₹31,200

If 1% TDS (₹3,000) was already deducted at the time of sale, you can claim it as credit while filing your ITR.

GST and Crypto Transactions

For regular investors, GST does not apply to crypto trading. However, if you run a crypto exchange, brokerage, or similar business, you must pay 18% GST on commissions or transaction fees earned.

Penalties for Ignoring Crypto Tax Rules

The Income Tax Department uses advanced tracking systems to identify crypto transactions. Failure to report your crypto income can lead to:

Penalties under Section 270A for underreporting income
Interest under Sections 234A/B/C for delayed tax payment
Scrutiny or reassessment notices
In extreme cases, prosecution for tax evasionBest Practices to Stay Tax Compliant

Keep detailed records of every transaction, including wallet addresses and exchange receipts.
Trade only on registered exchanges that handle TDS automatically.
Avoid anonymous P2P transfers without verifiable documentation.
Reconcile your TDS statements regularly.
Consult a tax professional to correctly classify and report your income.

The Road Ahead for Crypto Taxation in India

India’s crypto taxation framework is still evolving. The government may eventually introduce more refined rules — perhaps allowing loss set-offs or different rates for long-term holdings — as global practices mature.

At the same time, the rise of the Digital Rupee (CBDC) and international cooperation on crypto regulation signal that stricter compliance and transparency are here to stay.

Final Thoughts

Crypto may be virtual, but crypto tax in India is very real. Every transaction you make leaves a digital footprint, and the Income Tax Department expects you to report and pay tax accurately.

By understanding the tax laws, maintaining proper records, and filing returns on time, you can continue to invest confidently in digital assets without fear of penalties or scrutiny.

For professional guidance on crypto taxation, filing assistance, and financial compliance, you can connect with Dinesh Aarjav & Associates — trusted experts in NRI and domestic tax advisory services.

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