The Unforgiving 30% Tax Rule
The cornerstone of India's crypto tax regime is a flat 30% tax on any gains from the transfer of Virtual Digital Assets (VDAs), a category that includes all cryptocurrencies and NFTs. This tax rate applies irrespective of your income slab or how long
you held the asset; there is no distinction between short-term and long-term gains. When calculating your profit, the only deduction allowed is the original cost of acquisition. Expenses like transaction fees, gas fees, or internet costs cannot be claimed to reduce your taxable income. This makes the tax framework for crypto significantly stricter than for other assets like stocks.
The No Set-Off, No Carry-Forward Rule
Perhaps the most critical rule for investors to understand is the government's harsh stance on losses. You cannot offset losses from one crypto transaction against gains from another. For example, if you gain ₹50,000 from selling Bitcoin but lose ₹40,000 on an Ethereum trade in the same year, you still owe a 30% tax on the full ₹50,000 gain. The ₹40,000 loss provides no tax relief. Furthermore, these losses cannot be set off against any other income, like salary or stock market gains, nor can they be carried forward to future financial years.
Decoding the 1% TDS Mechanism
To track the growing volume of crypto transactions, the government implemented a 1% Tax Deducted at Source (TDS) under Section 194S. This means for most transactions exceeding a certain threshold (typically ₹10,000 annually), the buyer or the exchange deducts 1% of the transaction value. This TDS applies to crypto-to-fiat sales as well as crypto-to-crypto swaps. It's crucial to remember that this 1% deduction is not your final tax. It is an advance tax payment that is credited against your total tax liability when you file your income tax return (ITR). You can claim a refund if your total TDS deducted exceeds your final 30% tax obligation.
Compliance and Reporting are Mandatory
Since 2022, the government has moved from ambiguity to a clear focus on enforcement and data collection. Filing your crypto transactions is not optional. Your ITR form now includes a dedicated 'Schedule VDA' where you must report all crypto activity, including every trade, swap, and disposal. Exchanges are required to report user transaction data to tax authorities, meaning the Income Tax Department has significant visibility into trading activity. Stricter penalties for inaccurate reporting by exchanges were introduced in 2026, further ensuring that the government has a clear trail of transactions. Forgetting to report can lead to significant penalties.
The Broader Regulatory Picture
As of late 2026, India does not have a comprehensive, standalone law regulating cryptocurrencies. Instead, it governs the sector through its tax framework and by bringing crypto platforms under the purview of the Prevention of Money Laundering Act (PMLA). While buying, selling, and holding crypto is legal, it is not recognised as legal tender, meaning you cannot use it as an official currency. The Finance Ministry has expressed reluctance to create a full regulatory framework, fearing it might lend undue legitimacy to a risky asset class. The government's stance remains cautious, prioritizing investor protection and financial stability while discouraging widespread adoption in favour of its own Central Bank Digital Currency (CBDC).
