The Tax Man is Watching
The clearest part of India's crypto policy is taxation. Since 2022, any profit you make from selling, trading, or spending a Virtual Digital Asset (VDA)—which includes cryptocurrencies and NFTs—is taxed at a flat 30%, plus cess. This tax applies regardless
of how long you held the asset; there is no distinction between short-term and long-term gains. Crucially, you cannot offset losses from one crypto transaction against gains from another, or against any other income like salary or stock market profits. Each profitable trade is taxed on its own, making the regime quite strict.
Understanding the 1% TDS Rule
To ensure transactions are tracked, the government implemented a 1% Tax Deducted at Source (TDS) on crypto transfers above a certain threshold. For most individuals, this applies if your total transactions in a financial year exceed ₹50,000. This TDS is deducted by the exchange or the buyer on the total sale value, not just the profit. While this amount can be adjusted against your final tax liability when you file your returns, it impacts liquidity for frequent traders. This rule is primarily a tracking mechanism for the tax department.
What 'Not Fully Regulated' Means
The main confusion stems from the lack of a single, comprehensive regulatory framework. While crypto is legal to own and trade, it is not recognised as legal tender like the Indian Rupee. This means no single body like SEBI, which governs stocks and mutual funds, has complete oversight. As of late 2026, the government has decided against creating a separate law for crypto, fearing it would give investors a false sense of security. Instead, it uses existing laws. Crypto exchanges must register with the Financial Intelligence Unit (FIU-IND) and follow anti-money laundering (AML) and KYC norms, much like other financial institutions. But there is no specific investor protection framework.
The Risks of the Regulatory Gap
This regulatory gap creates significant risks for investors. First, there is no formal grievance redressal mechanism if you fall victim to a scam or if an exchange collapses. Unlike with regulated stocks, there is no official ombudsman to turn to. Second, the market is vulnerable to manipulation. With many platforms operating offshore and counterparties often being the platforms themselves, there is a risk of conflicts of interest. The Reserve Bank of India (RBI) has repeatedly highlighted these dangers, warning that crypto poses a threat to financial stability and could be used for illicit activities. The RBI remains consistently opposed to legalising cryptocurrencies.
What Should an Investor Do?
Given the current environment, the mantra for Indian crypto investors is caution. While you can legally participate, it is essential to understand the high-risk nature of the asset class. Experts advise using only FIU-IND registered exchanges that have robust KYC and AML procedures. Keeping meticulous records of all transactions is now more important than ever, as reporting requirements have become stricter. Investors must report all transactions—not just net gains—in their income tax returns. Finally, it is crucial to stay informed about policy discussions, as the regulatory landscape is still evolving.
