Is Cryptocurrency Legal in India?
First, let's clear up the most common question: yes, it is legal to buy, sell, and hold cryptocurrencies in India. However, they are not recognised as legal tender, which means you cannot use them for payments like you would the Indian rupee. Instead,
the government classifies them as Virtual Digital Assets (VDAs). This classification is key because it means crypto activities aren't banned, but they are subject to a specific and strict set of tax and compliance rules. The regulatory environment is still evolving, with no single comprehensive law in place, but the direction is towards tighter control and transparency rather than a ban.
The 30% Flat Tax on All Profits
Any income or profit you make from the transfer of a VDA is taxed at a flat rate of 30%, plus applicable surcharges and a 4% cess. This rule, under Section 115BBH of the Income Tax Act, applies regardless of your income tax slab and makes no distinction between short-term and long-term gains. When calculating your profit, the only deduction allowed is the original cost of acquiring the asset. Expenses like trading fees, internet costs, or platform subscriptions cannot be deducted to lower your taxable income. This high tax rate is one of the most significant factors for any crypto investor in India to consider.
Understanding the 1% TDS on Transactions
To increase transparency and track transactions, the government has implemented a 1% Tax Deducted at Source (TDS) on the transfer of VDAs under Section 194S. This applies to transactions exceeding a total of ₹10,000 in a financial year (or ₹50,000 for specified individuals). It's important to know that TDS is deducted from the total sale value, not just the profit. If you trade on an Indian exchange, this is typically handled automatically. This TDS is not your final tax; it is an advance tax that can be adjusted against your total tax liability or claimed as a refund when you file your returns.
The Harsh Rule on Setting Off Losses
Perhaps the most critical rule for Indian crypto investors is the inability to offset losses. If you sell one cryptocurrency at a profit but another at a loss, you cannot use that loss to reduce the taxable gain from your profitable trade. Each profitable transaction is taxed independently at 30%. For example, if you gain ₹50,000 on Bitcoin and lose ₹30,000 on Ethereum, you still owe tax on the full ₹50,000 gain. The ₹30,000 loss provides no tax benefit. Furthermore, crypto losses cannot be offset against any other income, such as from salary or stocks, nor can they be carried forward to future financial years.
Mandatory Reporting and Tighter Compliance
Since 2022, the Indian tax framework has become more structured, with mandatory reporting of all VDA transactions. When filing your Income Tax Return (ITR), you must use a specific section, 'Schedule VDA', to report all your crypto-related activities, including buys, sells, and swaps. Compliance has tightened significantly, and starting from April 2026, exchanges face penalties for inaccurate reporting. This move signals the government's focus on creating a fully transparent and traceable ecosystem for digital assets.
