The Taxman’s Rules are Clear
Since 2022, India’s stance on crypto taxation has been unambiguous and stringent. Any income from the transfer of Virtual Digital Assets (VDAs), which includes cryptocurrencies and NFTs, is taxed at a flat 30 percent, plus applicable cess and surcharges.
This is one of the highest tax rates globally for this asset class. Making matters more challenging for traders, losses from one crypto asset cannot be offset against gains from another, nor can they be carried forward to future years. The only deduction allowed is the initial cost of acquiring the asset. Furthermore, a 1 percent Tax Deducted at Source (TDS) is applied to most crypto transactions exceeding certain thresholds (₹50,000 for most individuals). This TDS serves as a tracking mechanism for the tax authorities, ensuring a clear trail of all VDA transactions.
The Regulatory Vacuum Persists
While the tax rules are crystal clear, the broader regulatory environment is not. A comprehensive bill, “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021,” was listed for introduction in Parliament but was never tabled and has since been shelved. As of September 2026, the government has decided against introducing a separate law for cryptocurrency. Officials reportedly fear that creating a formal rulebook could be misinterpreted by the public as an endorsement of safety or government backing for these volatile assets. This leaves the sector in a grey area; it is legal to buy, sell, and hold crypto, but these assets are not considered legal tender and lack the investor protections that come with formal regulation.
Two Institutions, Two Views
The gap between taxation and regulation is largely explained by the differing perspectives of India’s key financial institutions. The Finance Ministry has focused on bringing VDAs into the tax net, ensuring that gains are declared and taxed like any other income source. This approach legitimises crypto as a taxable asset class without necessarily endorsing it. In stark contrast, the Reserve Bank of India (RBI) has consistently voiced strong reservations. The central bank views cryptocurrencies as a threat to financial stability and monetary sovereignty, and has repeatedly recommended a policy leaning towards prohibition. The RBI is concerned about the potential for illicit activities and wants to keep the formal banking system insulated from the risks of private digital assets.
Navigating the Contradiction
For the average Indian investor, this duality creates significant uncertainty. On one hand, the existence of a tax framework implies a degree of acceptance. On the other, the lack of regulation means there are no formal grievance redressal mechanisms, no investor protection funds, and no clear operational guidelines that are standard for other financial products like stocks or mutual funds. Anti-money laundering (AML) and KYC norms have been tightened for exchanges, bringing them under the purview of the Financial Intelligence Unit (FIU-IND). However, the fundamental status of the assets themselves remains undefined. This policy of managing crypto through existing tax and AML laws, rather than a dedicated new act, means investors must be exceptionally cautious, as the regulatory ground could shift at any time.
