The Flat 30% Tax on All Profits
The cornerstone of India's crypto tax regime is simple and strict: any profit you make from the transfer of a Virtual Digital Asset (VDA) is taxed at a flat 30%, plus applicable cess and surcharges. VDAs include all cryptocurrencies like Bitcoin and Ethereum,
as well as Non-Fungible Tokens (NFTs). This tax applies regardless of how long you held the asset; there is no distinction between short-term and long-term capital gains, a key difference from how equity investments are treated. When calculating your profit, the law only allows you to deduct the 'cost of acquisition'—the price you paid for the crypto. Expenses like trading fees, transaction charges, or internet costs are not deductible, which can significantly impact your final tax liability.
No Setting Off Losses
One of the harshest aspects of India's crypto tax rules is the treatment of losses. If you incur a loss from selling a VDA, you cannot use it to offset profits from another VDA transaction. For example, if you make a ₹1,00,000 profit on Bitcoin but suffer a ₹80,000 loss on another altcoin, you are still required to pay the full 30% tax on the ₹1,00,000 gain. The ₹80,000 loss cannot be used to reduce your taxable crypto income. Furthermore, these losses cannot be set off against any other income, such as salary or stock market gains, nor can they be carried forward to future financial years to offset future profits.
Understanding the 1% TDS Rule
To track the high volume of crypto transactions, the government implemented a 1% Tax Deducted at Source (TDS) under Section 194S. This TDS is applied to the gross value of a crypto transfer if the total transactions in a financial year exceed ₹10,000 (or ₹50,000 for specified individuals). When trading on a domestic exchange, this is usually handled automatically. However, for peer-to-peer (P2P) transactions, the responsibility to deduct and deposit the TDS falls on the buyer. It's crucial to remember that this TDS is not an additional tax. It acts as an advance tax payment that you can claim as a credit when you file your annual income tax return. Your TDS deductions will appear in your Form 26AS and Annual Information Statement (AIS).
Is Cryptocurrency Legal in India?
This is a common point of confusion. As of September 2026, buying, selling, and holding cryptocurrencies in India is legal. However, crypto is not recognised as legal tender, meaning you cannot use it for payments like you would the Indian Rupee. Instead, the government classifies them as VDAs for taxation purposes. The regulatory landscape remains a grey area. There is no single regulator for the crypto sector. While a proposed bill to ban private cryptocurrencies was once discussed, it was never introduced in Parliament and has been effectively shelved in favour of tax and anti-money laundering measures. The Reserve Bank of India (RBI) remains cautious, repeatedly warning about financial stability risks and advocating for policies that lean towards prohibition. Recent government communications suggest a reluctance to create a formal regulatory framework, which they fear might legitimize a risky asset class for unsophisticated investors. Instead, the focus is on strengthening compliance and tracking through mandatory reporting by exchanges.
