The Flat 30% Tax on All Profits
India’s approach to taxing crypto is straightforward but strict. Any income or profit you make from the transfer of a Virtual Digital Asset (VDA) is taxed at a flat 30%, plus applicable cess and surcharges. This category includes cryptocurrencies like
Bitcoin and Ethereum, as well as Non-Fungible Tokens (NFTs). This tax applies regardless of your total income or how long you held the asset; there is no distinction between short-term and long-term gains. Crucially, the only deduction allowed when calculating your profit is the original cost of acquiring the asset. Expenses like trading fees, internet costs, or wallet subscription fees cannot be deducted to lower your taxable income.
Understanding the 1% TDS Rule
In addition to the 30% tax on gains, a 1% Tax Deducted at Source (TDS) is applied to the gross value of most crypto transactions. Introduced under Section 194S of the Income Tax Act, this rule is designed to help track and log crypto activities. The TDS is triggered when your total transaction value in a financial year exceeds a certain threshold. For most individual traders and Hindu Undivided Families (HUFs), this limit is ₹50,000. For other entities, the threshold is ₹10,000. If you trade on a registered Indian exchange, this 1% is automatically deducted by the platform. It's important to remember that this TDS is not your final tax. It is an advance tax that can be credited against your total 30% tax liability when you file your income tax return.
No Setting Off or Carrying Forward Losses
One of the harshest aspects of India's crypto tax regime is the treatment of losses. If you incur a loss from a crypto transaction, you cannot use it to offset profits made from another crypto transaction. For example, if you gain ₹1,000 on Bitcoin but lose ₹800 on Ethereum, you still have to pay the 30% tax on the full ₹1,000 gain. The loss from the Ethereum trade cannot be deducted. Furthermore, losses from VDAs cannot be offset against income from any other source, like salary or stock market gains, and they cannot be carried forward to future financial years.
The Legal and Regulatory Status
This is where much of the confusion lies. As of 2026, it is legal to buy, sell, and hold cryptocurrencies in India. However, they are not recognised as legal tender, meaning you cannot use them for payments in the way you use the Indian Rupee. India does not yet have a comprehensive crypto regulation bill. Instead, the ecosystem is governed through a combination of tax laws and anti-money laundering regulations. Exchanges operating in India must register with the Financial Intelligence Unit (FIU-IND) and comply with KYC (Know Your Customer) and PMLA (Prevention of Money Laundering Act) rules, similar to other financial institutions.
The RBI's Cautious Stance
The Reserve Bank of India (RBI) remains deeply skeptical of private cryptocurrencies. The central bank has consistently raised concerns about the potential risks they pose to financial stability, their use in illicit activities, and the threat to monetary sovereignty. In recent meetings with parliamentary committees, the RBI has reiterated its position that cryptocurrencies should not be legalised. This stance creates a unique tension: the government taxes crypto income heavily, while the central bank advocates for its prohibition. For now, investors operate in this grey area where the assets are taxable but not fully integrated into the formal financial system.
Filing Your Taxes and Looking Ahead
All VDA transactions must be reported in your annual Income Tax Return (ITR). A dedicated section, 'Schedule VDA', has been added to ITR forms for this purpose, requiring detailed, transaction-by-transaction reporting. Stricter compliance rules introduced in 2026 mean that accurate record-keeping is more important than ever. Looking forward, the Indian government continues to engage in discussions about a global framework for crypto assets. While a specific domestic bill remains pending, the current approach focuses on strict taxation and enforcement to manage risks while the regulatory path is being decided. Investors should continue to monitor announcements from the Ministry of Finance and the RBI for any policy shifts.
