Is Cryptocurrency Legal in India?
This is the most common question, and the answer is nuanced. As of late 2026, holding, selling, and buying cryptocurrencies is not illegal in India. However, crypto is not recognised as legal tender, which means you cannot use it for payments like you would
the rupee. Instead, the government has defined it as a Virtual Digital Asset (VDA). Recent reports from September 2026 indicate the government has decided against creating a separate law to regulate crypto, fearing it might wrongly signal that these assets are 'safe'. The official approach is one of caution: tax the activity, apply existing financial integrity laws, and monitor the sector without giving it formal regulatory approval. The Reserve Bank of India (RBI) remains wary, consistently advising against crypto and promoting its own Central Bank Digital Currency (CBDC), the e-Rupee, as a safer alternative.
The Flat 30% Tax on All Profits
India's crypto tax regime is one of the strictest globally. Any income or profit you make from the transfer of a VDA—which includes selling crypto for rupees, swapping one crypto for another, or even using it to buy an NFT—is taxed at a flat rate of 30%. This rate applies regardless of your income tax slab or how long you held the asset. There is no distinction between short-term and long-term capital gains, unlike with stocks. Furthermore, you can only deduct the cost of acquisition when calculating your profit. Expenses like trading fees, internet charges, or platform subscriptions are not deductible.
Understanding the 1% TDS Rule
To track transactions within the VDA ecosystem, the government implemented a 1% Tax Deducted at Source (TDS) under Section 194S of the Income Tax Act. This means that for every crypto transfer (buy or sell) above a certain threshold, the buyer or the exchange deducts 1% of the transaction value. This TDS applies if your total transactions in a financial year exceed ₹10,000 (or ₹50,000 for certain specified individuals). This 1% is not your final tax; it is an advance tax that can be claimed as a credit against your total tax liability when you file your income tax returns. Its main purpose is to create a trail of transactions for the tax authorities.
The Harsh Rule on Crypto Losses
This is a critical point that trips up many investors. In India, you cannot offset losses from one VDA against gains from another. For example, if you make a ₹50,000 profit on Bitcoin but suffer a ₹40,000 loss on Ethereum in the same year, you still have to pay the 30% tax on the full ₹50,000 Bitcoin profit. The ₹40,000 loss provides no tax relief whatsoever. Additionally, crypto losses cannot be set off against income from any other source, such as salary or stock market gains. These losses also cannot be carried forward to subsequent financial years, a stark contrast to how losses are treated in equity markets.
Taxation on Gifts and Airdrops
The tax rules extend beyond just trading. If you receive cryptocurrency as a gift from a non-relative and its fair market value exceeds ₹50,000, it is taxable in the hands of the recipient. Similarly, crypto received through events like airdrops or from staking rewards is also considered income and is taxable. While the exact method of taxing these can be complex, the principle remains that any form of income derived from VDAs falls under the tax net. Investors must report all such transactions in the dedicated 'Schedule VDA' in their Income Tax Return forms to remain compliant.
