India Crypto Tax: Your Complete Guide to Taxation on Cryptocurrency

Introduction: Navigating India’s Crypto Tax Landscape

With over 100 million crypto users, India ranks among the world’s largest cryptocurrency markets. The Finance Act 2022 brought clarity to digital asset taxation, introducing specific rules under Section 115BBH. Understanding India’s crypto tax framework is crucial for investors, traders, and businesses to ensure compliance and avoid penalties. This guide breaks down everything you need to know about reporting, calculating, and filing taxes on virtual digital assets (VDAs) in India.

How Cryptocurrency is Taxed in India

India treats cryptocurrencies like Bitcoin and NFTs as Virtual Digital Assets (VDAs), subject to unique tax provisions:

• 30% Flat Tax on Gains: All profits from transferring VDAs incur a 30% tax, regardless of holding period. No deductions (except acquisition cost) are permitted.
• 1% TDS on Transactions: Buyers must deduct 1% Tax Deducted at Source (TDS) on payments exceeding ₹10,000 per transaction or ₹50,000 annually to a single seller.
• No Loss Offset: Crypto losses cannot be set off against other income sources or carried forward to future years.
• Gift Taxation: Receiving crypto as a gift exceeding ₹50,000 annually is taxable for the recipient.

Key Steps to Calculate Your Crypto Tax Liability

1. Compile Transaction History: Export records from all exchanges/wallets showing dates, amounts, and values in INR.
2. Determine Cost Basis: Calculate acquisition cost (purchase price + transaction fees) for each asset.
3. Compute Capital Gains: Subtract cost basis from sale value. All gains are taxed at 30%.
4. Account for TDS: Deduct 1% TDS already withheld from transactions when reporting income.
5. File ITR Accurately: Report net gains under “Income from Other Sources” using ITR-2 or ITR-3 forms.

Major Challenges for Crypto Taxpayers

India’s crypto tax regime presents practical hurdles:

• Tracking Complexity: High-volume traders struggle with reconciling transactions across multiple platforms.
• Liquidity Impact: The 1% TDS reduces trading capital, potentially stifling market activity.
• Regulatory Ambiguity: Lack of clarity on DeFi, staking rewards, and airdrops creates compliance uncertainty.
• No Indexation Benefits: Unlike equities, long-term crypto holdings get no inflation-adjusted cost relief.

The Future of Crypto Taxation in India

While the current framework aims to curb speculation, industry advocates push for reforms. Potential developments include:

• Reduced TDS rates to revive trading volumes
• Clarification on overseas exchange reporting
• Inclusion under Securities laws for clearer classification
• Integration with global tax standards like CARF

Ongoing G20 discussions may further shape India’s approach, making regular policy monitoring essential.

India Crypto Tax FAQ Section

Is cryptocurrency legal in India?

Yes, cryptocurrencies are legal but unregulated. Trading and holding are permitted, subject to taxation under the Income Tax Act.

Do I pay tax if I hold crypto without selling?

No tax applies until you transfer (sell, trade, or spend) assets. Mere holding is not taxable.

How is the 1% TDS implemented?

Exchanges typically deduct 1% TDS at transaction execution for trades exceeding ₹10,000. This amount appears in Form 26AS for credit during ITR filing.

Can I deduct mining or trading expenses?

No. Section 115BBH prohibits deductions for expenses like hardware, electricity, or trading fees beyond the original acquisition cost.

What penalties apply for non-compliance?

Failure to report crypto income may incur 50-200% penalties on tax due plus interest. Deliberate evasion can lead to prosecution under the Income Tax Act.

Are NFT sales taxable?

Yes. NFTs qualify as VDAs and follow the same 30% tax + 1% TDS rules as cryptocurrencies.