The Flat 30% Tax on All Profits
The cornerstone of India's crypto tax regime is a flat 30% tax on any income or profit from the transfer of Virtual Digital Assets (VDAs), a category that includes all cryptocurrencies and NFTs. This tax is levied under Section 115BBH of the Income Tax
Act. It's a simple, blunt rule: it doesn't matter what your total income is or whether you held the asset for a week or five years. Unlike stocks, there is no distinction between short-term and long-term capital gains; all profits are taxed at the same high rate. On top of this, a 4% cess and any applicable surcharges are added, bringing the effective tax rate to at least 31.2%.
Understanding the 1% TDS Rule
To improve transaction traceability, the government introduced a 1% Tax Deducted at Source (TDS) on the transfer of VDAs, governed by Section 194S. This means for most transactions, the buyer or the crypto exchange will deduct 1% of the total sale value and deposit it with the government. This TDS applies if your total transaction value in a financial year exceeds ₹50,000 (or ₹10,000 in certain cases). It's important to remember that this is not your final tax. The TDS amount can be claimed as a credit against your total tax liability when you file your income tax return (ITR).
The Harsh Rule on Losses
This is the part that trips up most traders. Under Indian tax law, you cannot offset losses from one crypto trade against the gains from another. For example, if you make a ₹50,000 profit on Bitcoin but a ₹30,000 loss on Ethereum, you still have to pay the 30% tax on the full ₹50,000 profit. The loss is completely ignored for tax purposes. Furthermore, you cannot set off crypto losses against any other form of income, like your salary or stock market gains. The law also prohibits carrying forward these losses to future financial years, a provision available for stock market losses.
What Counts as a 'Transfer'?
A taxable event, or 'transfer', is not just about selling your crypto for Indian Rupees. The definition is broad and includes several common activities. Swapping one cryptocurrency for another (e.g., trading ETH for SOL) is considered a taxable transfer. Using crypto to pay for goods or services is also a taxable event. Even gifting a VDA is taxable for the recipient based on its fair market value. The only activity that is not taxed is simply buying and holding crypto in your wallet; the tax is triggered only when you transfer it.
How to Calculate Your Taxable Income
Calculating your taxable profit is straightforward, but restrictive. The only deduction allowed from your sale proceeds is the 'cost of acquisition'—the price you originally paid for the asset. No other expenses, such as exchange transaction fees, network fees, or wallet charges, can be deducted to lower your taxable gain. For every profitable trade, the calculation is simple: (Sale Price - Cost of Acquisition) x 30% (+ cess). Because of the strict no-loss-offset rule, each profitable transaction must be calculated and taxed independently.
Reporting and Compliance Are Key
All income from crypto assets must be declared in your Income Tax Return using the dedicated 'Schedule VDA'. Failing to report your crypto gains can lead to significant penalties, which can be 50% of the tax due for under-reporting and up to 200% for deliberate misreporting. As of 2026, exchanges are also required to report user transactions to the tax authorities, making it easier for the department to track non-compliance. Maintaining meticulous records of all your transactions, including dates, values, and purpose, is no longer optional but a necessity.
