The Unavoidable 30% Tax on Profits
The cornerstone of India's crypto tax policy is simple and strict: a flat 30% tax on any income from the transfer of Virtual Digital Assets (VDAs), which includes cryptocurrencies and NFTs. This tax rate applies regardless of your income bracket or how
long you held the asset. Unlike stock market investments, there is no distinction between short-term and long-term capital gains. On top of this, a 4% cess is applied, bringing the effective tax rate to 31.2% for most investors. What truly makes this regime one of the world's most aggressive is the rule on losses and deductions. You cannot deduct any expenses other than the initial cost of acquiring the asset—things like trading fees or internet costs are not deductible. Crucially, losses from one crypto transaction cannot be used to offset profits from another. If you gain ₹10,000 on Bitcoin but lose ₹8,000 on Ethereum, you still owe tax on the full ₹10,000 profit.
Understanding the 1% TDS Rule
To increase transparency and track the flow of crypto transactions, the government implemented a 1% Tax Deducted at Source (TDS) under Section 194S of the Income Tax Act. This TDS is deducted from the total value of the transaction, not just the profit. It applies to crypto transfers once the total value of your transactions in a financial year exceeds a certain threshold. For most individual investors, this threshold is ₹50,000, while for other taxpayers, it is ₹10,000. When you trade on a registered Indian exchange, this 1% is typically deducted automatically. However, if you are trading on an international exchange or in a peer-to-peer transaction, the responsibility to deduct and deposit the TDS falls on you. It's important to remember that TDS is an advance tax. The amount deducted can be claimed as a credit against your final tax liability when you file your income tax return.
Is Crypto Legal or Regulated in India?
This is a key point of confusion. As of 2026, it is perfectly legal to buy, sell, and hold cryptocurrency in India. The Supreme Court overturned the RBI's banking ban in 2020, allowing banks to service compliant crypto exchanges. However, legal does not mean it is legal tender. You cannot use cryptocurrency for payments like you use the rupee. Instead of a full regulatory bill, the government's approach has been to define crypto as a Virtual Digital Asset (VDA) for taxation and monitoring purposes. All crypto service providers operating in India, including offshore exchanges with Indian users, must register with the Financial Intelligence Unit (FIU-IND) and comply with anti-money laundering (AML) rules. This has led to a framework of institutional discipline rather than an outright ban, making tax compliance the most critical factor for investors. A recent finance ministry statement indicated it is not planning a specific regulatory regime, fearing it might lend false legitimacy to a risky asset class.
How to Report Your Crypto Income
The government has made crypto transaction reporting mandatory and more stringent. When filing your Income Tax Return (ITR), you must use either ITR-2 or ITR-3 and fill out a specific section called 'Schedule VDA'. This schedule requires a detailed, line-by-line declaration of all your crypto transactions, including dates of acquisition and transfer, costs, and sale prices. Since April 2026, exchanges are also required to report all user transactions directly to the tax department, which allows authorities to cross-verify the information you declare. Mismatches can be automatically flagged. If you hold any crypto assets on foreign platforms, you must also disclose them in 'Schedule FA' (Foreign Assets). Given these strict reporting requirements, maintaining meticulous records of every single transaction you make throughout the year is no longer optional—it is essential for compliance.
