Synopsis: This article covers everything regarding the taxation of cryptocurrency in India. It includes tax laws, tax calculation, TDS, set off rules, gift rules, crypto mining, staking, ITR filing, and consequences for failing to pay tax.
Through the 2022 Finance Act, tax for cryptocurrencies was introduced by classifying them as Virtual Digital Assets (VDA). There haven’t been much changes with its taxation since then. According to the data from the Ministry of Finance, a whopping ₹511 crore of crypto-TDS was collected in FY 2024-25.
What Is Cryptocurrency Under Indian Tax Law?
Under Section 2(47A) of the Income-tax Act, 1961, which was introduced in the Finance Act of 2022, cryptocurrencies were classified as VDAs, and all major cryptocurrencies such as Bitcoin and Ethereum and NFTs came under this classification. Additionally, crypto is not taxed like the normal capital gains as government created a separate tax framework for VDAs.
How Cryptocurrency Is Taxed in India
Under Section 115BBH, a flat rate of 30% is applied on the income from transfer if any VDA along with 4% health and education cess. When it comes to deductions, only the cost of acquisition (purchase price) is allowed as a deduction. No other expenses such as exchange fees, brokerage charges etc are allowed for deduction. Therefore, the taxable gain = sale price – purchase price. No deduction is allowed for:
- Any other expense
- Exchange fees
- Brokerage
- Gas fees
- Commission
- Internet charges
| Particulars | Amount |
| Purchase Price | 1,00,000 |
| Sale Price | 1,50,000 |
| Taxable Gain | 50,000 |
| Tax Rate | 30% |
| Tax Payable | 15,000 + cess and applicable surcharge |
One key point to note is that each sale is taxed separately so even if you make loss in other crypto transactions, you can’t set it off against gains and you’ll have to pay the 15,000 tax on the gains.
What About 1% TDS on Crypto?
Apart from the 30% tax on gains, cryptocurrency transactions in India are also subject to 1% TDS under Section 194S of the Income-tax Act. This provision was introduced to track high-value crypto transactions and bring transparency to the ecosystem.
Is 1% TDS an Extra Tax?
No. The 1% TDS is not an additional tax burden. It is simply tax deducted in advance at the time of sale. You can claim this amount as credit while filing your Income Tax Return (ITR). It will be adjusted against your final tax liability. If excess TDS has been deducted, you can claim a refund.
When Does TDS Apply?
TDS is triggered when the total value of your crypto transfers in a financial year exceeds: [₹50,000 – if you are a specified person and ₹10,000 – in all other cases], A specified person generally includes:
- Individuals or HUFs
- Whose business turnover does not exceed ₹1 crore (₹50 lakh for professionals) in the previous financial year, or
- Who do not have business income
Once you cross the threshold, 1% TDS is deducted on every eligible transaction thereafter.
How Is TDS Calculated?
This is where many investors get confused. The 1% TDS is deducted on the entire sale value, not on the profit. For example:
- Purchase price: ₹1,00,000
- Sale price: ₹1,50,000
- TDS deducted: 1% of ₹1,50,000 = ₹1,500
Even if you sell at a loss, TDS may still be deducted on the gross sale consideration.
Can You Set Off Crypto Losses?
Section 115BBH of the Income Tax Act, 1961 requires you to treat a loss on selling or transferring VDAs as non-deductible, and not in any way offset other crypto transactions. Nor can you compare it with any other income like salary, business income, capital gains or interest. These losses also are not transferable to the future.
Tax on Crypto Received as Gift
India Gifted crypto is subject to the tax of Virtual Digital Asset (VDA). Section 56(2) (x) states that in case you get VDA as a gift, its value can be treated as an Income under Other Sources.
The gift is subject to taxation when the fair market value (FMV) of the crypto exceeds 50, 000 rupees within a financial year and the recipient of the gift is not a relative. When both requirements are fulfilled, the whole value (and not the amount exceeding 50,000) is subjected to normal income-tax rate of the recipient.
The crypto gifts received by relatives like spouse, parents, siblings, etc. regardless of the value are not taxable. They also have exemption in special instances such as in inheritance or gifts made under a will.
Is Crypto Mining or Staking Taxable?
Yes. You are subject to tax as ordinary income on the value of the tokens acquired by mining rewards, staking income, airdrops, referral bonuses, or token compensation incurred in the performance of a service, pursuant to either Income from Other Sources or Profits and Gains of Business or Profession. It is not your 30 rate of income-tax, but your regular income-tax slab rate.
Also read: What is Advance Tax? How Missing It Can Cost You Thousands in Penalties
How to Report Crypto in Your ITR
- You will need to report your crypto under Schedule VDA in your Income Tax Return (ITR) in case of the year in which you have been buying, selling, or otherwise transferring crypto. Individuals and HUFs who do not not have business income use ITR-2 and those with business or professional income use ITR -3.
- You must include information like date of acquisition, date of transfer, sale price, and cost of acquisition, taxable gain and details of any 1 % TDS. The income will be taxed at 30% during the calculation of the income under Section 115BBH but not as part of other items of income.
What Happens If You Don’t Pay Crypto Tax?
If you fail to report or pay tax on cryptocurrency gains, the Income-tax Act provides for interest and penalties. Interest is levied under Sections 234A, 234B and 234C for delay in filing the return or for failure to pay advance tax on time. The rate of interest is 1% per month or part of a month on the unpaid tax amount, and it continues until the dues are cleared.
Apart from interest, non-disclosure of crypto income can attract penalties under Section 270A. If the income is treated as under-reported, the penalty can be 50% of the tax payable on such income. In cases of misreporting such as deliberate concealment or providing incorrect details the penalty may go up to 200% of the tax due. A late filing fee under Section 234F may also apply if the return is not filed within the prescribed deadline.
In more serious situations involving wilful tax evasion, prosecution proceedings may be initiated under Section 276C. Depending on the amount of tax sought to be evaded, this can result in monetary fines and even imprisonment. Given the strict reporting requirements around Virtual Digital Assets, maintaining proper transaction records and timely compliance is essential to avoid unnecessary legal trouble.
Conclusion
With the industry continuing to evolve and citizens seeking to save on budgets, there is one thing that is evident in India, crypto is digital, but taxes are real. These rules are significant to those who invest, trade, mine, or get gifts in the form of cryptos. Making proper records, reporting and being aware of what is due in the form of taxes can prevent serious mistakes and legal issues.
Written by Nila Maria Jacob
FAQs
Yes. Cryptocurrency trading and investment are legal in India. However, they are regulated from a taxation perspective and classified as Virtual Digital Assets (VDAs) under the Income-tax Act.
No. Simply holding cryptocurrency in your wallet is not a taxable event. Tax is triggered only when you transfer it such as selling, swapping, or using it to purchase goods or services.No. Simply holding cryptocurrency in your wallet is not a taxable event. Tax is triggered only when you transfer it such as selling, swapping, or using it to purchase goods or services.
