Cryptocurrency Taxes in India

Cryptocurrency taxes in India have evolved from a niche interest to a very popular investment trend, always keeping the tax collector in the loop. With certain guidelines for reporting and making payments, the profit from virtual digital assets like Bitcoin, Ethereum, and NFTs is now treated like any other taxable income. The goal is to ensure transparency while also providing structure to this rapidly growing digital gold rush. Having knowledge about the cryptocurrency taxes in India is essential for making wiser decisions, which are penalty-free, rather than just following the law. In this piece of content, you will learn everything about the cryptocurrency taxes in India.

What are Cryptocurrency Taxes in India?

Cryptocurrency taxes refer to the rates and rules that are applied to the income earned from all the virtual digital assets, such as NFTs, Ethereum, and Bitcoin. The government categorises all these assets separately, and any gains from investing, trading, or transferring them are subject to a particular tax framework. This also covers how to report income, deduct tax at source, and keep accurate transaction records. The main purpose of doing this is to control the rapidly growing cryptocurrency market, maintain transparency, and prevent any misuse.  Investors can make wise financial decisions and stay compliant by understanding how cryptocurrency taxes in India work.

Current Tax Rules for Cryptocurrency in India

You need to understand how crypto is taxed in India, and the following details will tell you that:

1. Flat Tax on Profits from Virtual Assets: Whatever you are earning from your virtual digital assets, such as NFTs, bitcoin, ethereum or even token swaps, is now subject to 30% taxation. Also, the losses that occurred cannot be deducted from other sources of income.
2. TDS on Every Crypto Transaction: Most of the VDA transactions in India are now subject to 1% tax deducted at source (TDS). It doesn’t matter if there is a profit or not, as this applies to the entire transaction value.
3. GST on Platform Fees: From July 2025 onwards, crypto exchanges have started charging 18% GST on withdrawals, trading, and platform services. This raises the total cost of the transaction in cryptocurrency.
4. Mandatory Reporting and Transparency: The strict reporting guidelines were introduced in the interim budget for 2025. Tax authorities now must receive transaction data from cryptocurrency exchanges and intermediaries. Investors must report their crypto income and gains under a dedicated section known as Schedule VDA in their income tax return.
5. Global Exchange of Information (CARF): India is now implementing the crypto asset reporting framework (CARF), which is a global standard to enhance oversight. This implies that in order to prevent tax evasion, cryptocurrency exchanges will share authorities with the user’s tax information.

Types of Transactions That Attract Tax

Let us discuss the main types of transactions that attract tax:

1. Selling Crypto for INR or Any Fiat Currency: The profit from selling the cryptocurrency is subject to a flat 30% tax if you receive Indian rupees or any foreign currency in exchange. Losses cannot be deducted from other income or claimed as a deduction apart from the purchase costs.
2. Swapping One Cryptocurrency for Another: If you are trading bitcoin for ethereum or any other cryptocurrency can be considered a taxable event, even if you don’t cash out to Indian rupees. The gains are calculated using the asset’s value.
3. Spending Crypto to Buy Goods or Services: It is considered a taxable transfer when a cryptocurrency is used to pay for goods, services or even for travel reservations. You must pay taxes on the difference between the purchase cost of the cryptocurrency and its current market value.
4. Receiving Crypto as Payment or Rewards: Cryptocurrency is taxable as income at your applicable slab rate if you receive it as payment for labour, mining rewards, or airdrops. When you plan to sell it, the capital gains tax applies again.
5. Gifting or Transferring Crypto: If a cryptocurrency gift exceeds Rs. 50,000, the recipient is subject to taxes, unless the gift is to a relative as per tax laws.

How is Cryptocurrency Tax Calculated?

Here is how you can calculate your cryptocurrency tax:

1. Identify the Transaction Type: You need to identify if your transaction is a swap, sale, or spending of cryptocurrency. All of these are considered as a taxable event, so it doesn’t matter if you receive Indian rupees or another digital asset in exchange.
2. Calculate the Sale Value: Now, you need to check your cryptocurrency’s fair market value at the moment of the transaction. For instance, if you are selling a bitcoin for Rs. 20 lakh, then that amount becomes your sale value.
3. Deduct the Cost of Acquisition: You need to deduct the original purchase cost, including any transaction fees paid at the time of acquisition, from your sale value. This will give you your exact net gain.
4. Apply the 30% Tax Rate: To find your tax liability, you need to multiply your net gain by 30 %. For example, if your profit is Rs. 5 lakh, the tax on that would be Rs. 1.5 lakh, excluding surcharge and cess.
5. Include TDS Obligations: Since the year 2022, most of the cryptocurrency transactions which exceeded Rs. 10,000 in the financial year are subject to a 1% TDS deduction. This is collected at the transaction time and then deducted from your final tax liability.

TDS on Cryptocurrency Transactions

Cryptocurrency transactions in India are not only about making profits, as they also include tax deducted at source (TDS). It was established in the year 2022 under Section 194S of the Income Tax Act to track and regulate cryptocurrency transactions while also guaranteeing tax compliance.

1. TDS on Crypto

TDS refers to the small percentage that is deducted from the transaction amount and then deposited with the government. This represents 1% of the total transaction value for cryptocurrency trades, and not just the profit.

2. When Does It Apply?

TDS usually applies to transactions that involve virtual digital assets such as Ethereum, Bitcoins, NFTs, and other cryptocurrencies. This is implemented only if the total transaction value is over Rs. 50,000 in the financial year for specific people, and Rs. 10,000 for others.

3. Who Deducts TDS?

If you are trading through a crypto exchange in Indian, the platform typically deducts the TDS accordingly before crediting the amount to your account. Usually, in peer-to-peer (P2P) transactions, the buyer is required to deduct and deposit the TDS with the government.

4. Impact on Traders

Even though 1% may not seem that much as regular traders may often experience the impact when it reduces liquidity. If you are an active trader, the TDS deducted can which was withheld can add up, especially when you are executing multiple trades in a short time.

5. Claiming TDS at Tax Filing

When you are filing your returns, you can deduct the TDS and adjust it to your total income tax liability, which is not an additional tax. If you want to claim credit, you need to make sure your records are accurate and Form 26AS details are up to date.

Penalties for Not Paying Crypto Taxes

Let us go through some of the penalties for not paying crypto taxes:

1. Interest on Unpaid Taxes: There is an interest under Sections 234A, 234B, and 234C of the Income Tax Act if you fail to pay the required amount of tax on time. This leads to an increase in your total liability, which makes late payments even costlier.
2. Monetary Penalties: You can be fined up to 50% of the tax value for under-reporting income as per Section 270A. But if you are hiding it intentionally, the penalty can increase as high as 200% of the payable tax amount.
3. Prosecution for Tax Evasion: The penalty for serious tax evasion can result in criminal prosecution as per section 276C and imprisonment, which can be between 3 months to 7 years with a fine.
4. TDS Non-Compliance Penalties: Failure to deduct TDS, which is 1% on cryptocurrency transactions, is mandatory and may result in penalties as per Section 271C and interest under Section 201(1A).
5. Loss of Set-Off Benefits: If you do not report your cryptocurrency trading losses, you lose the potential tax benefits, as they cannot be carried forward or deducted from your other income sources.

Tips to Reduce Your Crypto Tax Liability Legally

By planning your transactions and understanding the tax framework, you can optimise your returns while staying compliant. these are some tips to reduce your crypto tax liability legally:

1. Hold for the Right Time: Instead of frequent trading, consider holding your crypto until market conditions improve. Fewer transactions mean fewer taxable events and less TDS deduction over time.
2. Use Peer-to-Peer (P2P) Transactions Carefully: In P2P trades, the buyer deducts TDS. While this does not remove tax obligations, it only allows more flexibility in structuring transactions. Always report them accurately to avoid penalties.
3. Offset Mining or Acquisition Costs: Although you cannot deduct general expenses, at least you can subtract the cost of acquisition, which includes purchase price and transaction fees, from your sale value to reduce taxable gains.
4. Gift Crypto to Relatives: Gifting cryptocurrency to close relatives (as defined by the Income Tax Act) is tax-free for the recipient. This can be a strategic way to transfer value without triggering capital gains tax immediately.
5. Maintain Detailed Records: Keep your transaction histories, wallet addresses, and exchange statements as they might be needed later. Having proper documentation ensures you do not overpay tax and also helps in claiming TDS credit during filing.

Cryptocurrency taxes in India ensure that all the profits from Ethereum, Bitcoin, NFTs, and other virtual assets are reported and taxed transparently. The government now treats these earnings like any other taxable income, with clear rules for rates, TDS, and reporting. Understanding these regulations helps investors avoid penalties, optimise returns, and trade confidently. Knowing the tax laws is not just about compliance, but a smart way to protect your profits and plan your crypto journey responsibly. This blog provided you with detailed information on cryptocurrency taxes in India. Contact Online Legal India to get assistance in filing tax returns from professional experts.

FAQ

1. Do I need to pay tax on cryptocurrency in India?

Yes. Profits from cryptocurrencies like Bitcoin, Ethereum, and NFTs are taxed at a flat 30%, plus surcharge and cess. You must also follow TDS rules on certain transactions.

2. What is the TDS rate for cryptocurrency transactions?

A 1% TDS applies to most crypto transactions above Rs. 50,000 a year and Rs. 10,000 for some cases. It is deducted from the transaction value, not just your profit.

3. Can I avoid paying crypto tax if I hold my coins?

No tax is due until you sell, swap, or spend your cryptocurrency. Simply holding crypto does not trigger a tax event.

4. Can I offset crypto losses against other income?

No. Under current rules, you cannot set off cryptocurrency losses against profits from other assets or income sources.

5. How do I report my cryptocurrency income in India?

You must report it under the “Virtual Digital Assets” section in your income tax return, which includes transaction details and TDS paid.