Crypto Taxes in India: How Profits Are Taxed (Simple Guide)

Synopsis: This article explains how cryptocurrency profits are taxed in India under the Virtual Digital Asset (VDA) framework, including tax rates, reporting requirements, and the step-by-step procedure for filing crypto taxes.

Following the Union Budget 2026-27 presented on February 1, 2026, India’s taxation of cryptocurrency remains governed by the Virtual Digital Asset (VDA) Framework introduced in Budget 2022. While the budget made no changes to the existing tax rates, it has strengthened enforcement through a stricter penalty system for reporting entities to ensure compliance.

Crypto assets are taxed under Section 115BBH of the Income Tax Act, 1961, with administration and enforcement handled by the Income Tax Department.

Understanding the Tax Rules

To calculate crypto taxation, you must compute gains for each transaction individually. Here’s what applies:

• 30% flat tax on profits from the transfer of crypto assets (plus applicable surcharge and 4% cess)

• 1% Tax Deducted at Source (TDS) on transactions exceeding ₹50,000 per financial year (₹10,000 in certain cases) under Section 194S

• All transactions must be reported under Schedule VDA in your Income Tax Return (ITR) form

Critical Restrictions

The current framework imposes several strict limitations:

• No set-off of crypto losses against any income, including other crypto gains
• No carry forward of losses to future financial years
• Only the cost of acquisition is allowed as a deduction
• No other expenses can be claimed (exchange fees, gas fees, network charges, mining costs are all non-deductible)

What Transactions Are Taxable?

Taxable Events

The following transactions trigger tax liability:

• Sale of crypto for Indian Rupees (INR) or foreign currency
• Crypto-to-crypto trades (swapping one cryptocurrency for another)
• Using crypto to pay for goods or services
• Receiving crypto as gifts from non-relatives (if the value exceeds ₹50,000)
• Receiving crypto as consideration or payment

Non-Taxable Events

• Transferring crypto between your own wallets without consideration (simple wallet-to-wallet transfers where ownership doesn’t change)

Step-by-Step Guide: How to File Crypto Taxes

Step 1: Obtain Transaction Records

Gather all transaction records executed during the financial year from:

• Indian crypto exchanges
• Foreign exchanges
• Self-custody wallets

Your records should include:

• Buy and sell transactions
• Crypto-to-crypto trades
• Crypto used for purchasing goods or services
• Crypto received as gifts or other consideration

Step 2: Identify Taxable Transactions

Review your records and identify all transactions that qualify as taxable events (refer to the “What Transactions Are Taxable?” section above).

Step 3: Compute Gains Transaction-wise

Calculate profit for each transaction independently using:

Profit = Sale Consideration – Cost of Acquisition

Important: All profits must be computed separately for each transaction. Remember:

• Exchange fees, gas fees, and network charges cannot be deducted
• Losses cannot be adjusted against gains to reduce your taxable income
• Each gain is taxed independently at 30%

Step 4: Reconcile 1% TDS

Indian exchanges deduct 1% TDS on qualifying transactions. To reconcile:

• Check Form 26AS or the Annual Information Statement (AIS) on the Income Tax e-filing portal
• Match all TDS entries with your transaction data
• Ensure accuracy, as mismatches can trigger penalties

Budget 2026 Update: The penalty framework has been strengthened for inaccurate or incomplete reporting by exchanges and reporting entities.

Also Read: What Is the CMC Crypto Fear and Greed Index?

Step 5: Choose the Correct ITR Form

Crypto income is not classified under Capital Gains for ITR purposes, despite being an investment for most people. Instead, it’s taxed under Section 115BBH with special provisions.

• Use ITR-2 if you have crypto income but no business income
• Use ITR-3 if you also have business income or trade crypto systematically as a business activity

Step 6: Complete Mandatory Reporting in Schedule VDA

Schedule VDA is the dedicated section for reporting Virtual Digital Asset transactions. You must provide:

• Date of acquisition and date of transfer
• Name and type of VDA (e.g., Bitcoin, Ethereum, NFT)
• Sale consideration received
• Cost of acquisition
• Taxable income (Profit = Sale Consideration – Cost of Acquisition)

All transactions must be reported, whether they resulted in profit or loss.

Step 7: Pay Any Remaining Tax

If your total tax liability exceeds the TDS already deducted:

1. Pay self-assessment tax before filing your return
2. Include applicable interest charges if there’s any delay
3. Remember: An unpaid tax liability makes your return defective

Step 8: File and Verify the Return

1. File your return through the official Income Tax e-filing portal (www.incometax.gov.in)
2. Complete e-verification using any of the available methods (Aadhaar OTP, net banking, etc.)

New Penalties Introduced in Budget 2026

The Union Budget 2026 has introduced stricter penalties for reporting entities (exchanges and platforms) to ensure compliance:

Penalty Structure

1. ₹200 per day penalty for failure to furnish required statements (applies to reporting entities under Section 509 of the Income Tax Act)
2. Flat ₹50,000 penalty for providing incorrect information or failing to correct mistakes

Effective Date

These penalties take effect from April 1, 2026.

What This Means for Traders

The government is significantly increasing enforcement measures. All crypto traders and investors must:

• Maintain accurate transaction records
• Report all transactions honestly and completely
• Ensure data matches what exchanges report to authorities
• File returns on time to avoid complications

Failure to comply with reporting requirements will result in penalties, interest charges, and potential legal consequences.

Important Reminders

• The crypto tax framework in India is one of the strictest globally
• Always maintain detailed records of all transactions
• Consult a tax professional if you’re unsure about any aspect of your filing
• Non-compliance can result in severe penalties beyond just financial fines
• The government is using advanced analytics and data matching to track compliance

By following these guidelines and staying compliant with the regulations, you can navigate India’s crypto tax landscape while avoiding penalties and legal issues.

Written by Parvati Anilkumar