Understanding India’s crypto tax landscape: a 2025 essential guide for traders

In India, the rules about taxes on cryptocurrencies are set out in the Income Tax Act, 1961. These rules will not change when the Income Tax (No. 2) Bill, 2025 comes into effect on the 22^nd of August 2025. Section 2(47A) clearly defines a VDA as any code, number, token, or piece of information created through cryptography, explicitly excluding fiat currencies. This means your Bitcoin, Ether, NFTs and other digital tokens fall squarely into this category. It’s legal to buy, sell and hold VDAs in India, but they’re not recognised as a valid payment method. So, in 2025, crypto is in a bit of a grey area legally – it’s allowed, but the authorities are watching it closely for tax and anti-money laundering reasons.

There are several important organisations that check crypto transactions. The Income Tax Department, which is part of the Ministry of Finance’s Central Board of Direct Taxes (CBDT), makes sure that people pay their taxes. The Financial Intelligence Unit (FIU-IND) makes sure that crypto platforms follow the rules on Anti-Money Laundering (AML). The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have a more general role in creating the rules. All of these organisations work together to make sure that everyone pays the right amount of tax on their crypto.

What triggers crypto tax in India?

When it comes to crypto transactions in India, the tax framework is quite specific: expect a flat 30% tax on any gains from transfers, plus a 1% Tax Deducted at Source (TDS) applied to virtually all transfers, regardless of profitability. Essentially, any activity that generates income, gains, or measurable benefits in fiat currency under Indian law constitutes a ‘taxable event.’ For traders and investors, understanding these events is paramount for compliance. Here’s what typically triggers a tax liability:

• Trading: Swapping one cryptocurrency for another, or selling crypto for fiat currency.
• Staking rewards: Considered income the moment you receive them.
• Airdrops and hard forks: Taxed as income once the tokens hit your wallet.
• Mining income: Initially taxed as income, with subsequent sales potentially incurring capital gains tax.
• Payments in crypto: If you receive crypto as payment for goods or services, it’s considered taxable business or professional income.

Conversely, simply holding digital assets without selling or transferring them, or moving crypto between your own personal wallets, generally doesn’t trigger a tax event, as these actions don’t generate income or gains.

A vital point to remember: Indian law currently offers no tax relief if your crypto assets are lost due to theft or hacks. This means you can’t offset these losses against your tax liabilities. Be warned: non-compliance can lead to hefty penalties, interest, and even prosecution for deliberate tax evasion.

Crypto tax rates and classifications

When it comes to taxes, your crypto income in India can usually be put into one of two groups: business income or capital gains. If you’re a regular, systematic trader, your earnings are likely to be treated as business income, which means you will be taxed according to the standard income tax rates. But for most people who buy and sell cryptocurrencies, the money they make is counted as a profit.

An important update as of 22^nd of August 2025: Section 115BBH says that there is a flat 30% tax on both short-term and long-term capital gains from VDAs. This 30% applies no matter how long you’ve had the asset. Also, the rules are strict: you can only deduct the cost you paid directly, and you cannot use one VDA loss to offset another VDA loss, or carry forward a VDA loss to future financial years. Business income from crypto is taxed at slab rates. But the effective rate is often 30% because of specific VDA rules.

To make things clear and fair, a 1% tax is added to all crypto transfers that are more than a certain amount. This rule applies to all transactions, whether they are on a centralised exchange or between two people directly.

Decoding TDS on VDAs in India

Section 194S of India’s tax code mandates a 1% TDS (Tax Deducted at Source) on most VDA transactions. This mechanism was introduced to bolster compliance and enhance oversight of the rapidly growing crypto market. Here’s a breakdown of how it works:

• The mechanism: When you buy a VDA, the buyer is responsible for deducting 1% of the sale amount as TDS and remitting it to the government. This essentially means tax is withheld from the seller’s payment.
• Rate and thresholds: A 1% TDS applies to the sale amount if transactions exceed ₹50,000 in a financial year. For certain specified cases, this threshold drops to ₹10,000.
• Non-cash transactions: If you purchase a VDA using another VDA (a non-cash payment), the buyer still needs to deduct 1% TDS in cash, based on the VDA’s sale value, and deposit it with the government.
• Mixed payments: In scenarios where a buyer uses a combination of cash and another VDA for payment, and the cash portion isn’t enough to cover the 1% TDS, the buyer must contribute the additional TDS amount from their own funds.
• TAN requirement: “Specified persons” (as defined by law) are exempt from needing a Tax Deduction and Collection Account Number (TAN) for TDS purposes under Section 203A.
• TDS exemption for specified persons: No TDS is deducted if a specified person’s total VDA consideration in a financial year is ₹50,000 or less.
• TDS exemption for non-specified persons: For individuals who aren’t “specified persons,” the TDS is waived if the VDA consideration is ₹10,000 or less in a financial year.
• Precedence: If a VDA transaction could fall under both Section 194S and Section 194-O (which relates to e-commerce operators), Section 194S takes priority.
• Suspense accounts: If a buyer places the VDA payment into a suspense or temporary account belonging to the seller, the responsibility for deducting the TDS shifts to the seller.

Crucially, trading on foreign exchanges does not exempt your profits from Indian tax laws. You’re still obligated to declare all offshore transactions in your Indian Income Tax Returns (ITRs), which could also lead to scrutiny under the Foreign Exchange Management Act (FEMA).

How to calculate your crypto taxes

To calculate your crypto taxes in India, you first need to know your ‘cost basis’. This is basically the original purchase price of your VDA, plus any directly related expenses like exchange or transaction fees. This cost basis is important for working out any gains or losses when you eventually sell or transfer the asset.

You can track your transactions using different methods, such as First-In-First-Out (FIFO) or Last-In-First-Out (LIFO). Whatever method you choose, it’s important to be consistent, as this directly affects your taxable gain calculations.

It’s important to know that if you trade crypto to crypto, this is treated as two different taxable events. This means you are considered to have sold one asset (which could result in a gain or loss) and bought another at the same time. Both assets are valued at their fair market price in Indian rupees at the time of the trade.

Some expenses, like transaction fees, wallet or exchange charges, and crypto tax software costs, can be included in your cost of acquisition. However, Indian law is quite strict and generally doesn’t permit broader deductions beyond these direct acquisition costs.

Reporting and compliance requirements

The law in India says that anyone who buys or sells crypto must report it, even if they lost money. You must clearly declare any income from crypto-currencies under the “VDAs” category. Capital gains are usually reported using ITR-2, while business income needs ITR-3. A big change is coming from FY 2025-26, with a new “Schedule VDA” being introduced. This will mean you have to report each crypto transaction separately.

It is very important to keep detailed records. This includes information about all the money going in and out, as well as the exchange rates, wallet addresses and how much the rupees are worth. These records are the best protection for you if there is an audit or review.

Mark your calendars: The deadline for filing income tax returns in 2025 is July 31st for individuals not requiring an audit, and October 31st for businesses that do. If you don’t, you could be hit with severe penalties, like interest on unpaid taxes, fines for late filing, and even prosecution for deliberate tax evasion.

Please note that crypto gifts are also taxed if they are worth more than ₹50,000. However, you won’t have to pay tax on a crypto gift if it was given to you by a close relative or on specific, exempt occasions.

Challenges faced by crypto traders

Despite clear rules for VDA gains, navigating crypto taxation in India remains a complex endeavor, riddled with challenges that can cause confusion and compliance headaches for traders. Here are some of the key issues:

• Regulatory ambiguity: There’s still a noticeable lack of clarity in tax laws concerning decentralized finance (DeFi), staking, lending, and NFT sales. This often leads to inconsistent reporting practices.
• Tracking high-volume trades: For active traders operating across multiple platforms, accurately calculating gains and maintaining impeccable records can be an overwhelming task.
• Cross-border transaction headaches: Utilizing foreign exchanges or wallets introduces a layer of complexity, raising concerns related to the Foreign Exchange Management Act (FEMA), potential double taxation, and intricate international reporting requirements.
• Lost or stolen assets: As mentioned earlier, the absence of tax relief for lost or stolen crypto assets leaves traders in a difficult position, unsure how to properly account for such unfortunate events in their tax filings.