What Happens If You Don’t Pay Crypto Tax in India? Penalties & Risks Explained
Crypto taxation in India is more complex than just paying tax when you sell your assets. Many investors unknowingly skip tax obligations on activities like trading, gifting, and even receiving airdrops. The Indian government treats crypto as a digital asset, similar to stocks or real estate, meaning any gains are taxable.
Failing to pay crypto taxes can result in serious penalties, including fines, interest on unpaid taxes, and even legal consequences. This article breaks down what happens if you don’t pay your crypto taxes and how to stay compliant with Indian tax laws.
Understanding Crypto Taxation in India
Is Crypto Taxed in India?
Yes, crypto is taxed in India. Under Section 115BBH of the Income Tax Act, profits from crypto transactions are subject to a flat 30% tax. Additionally, a 1% TDS (Tax Deducted at Source) is deducted at the time of sale under Section 194S if the transaction amount exceeds ₹10,000 (for individuals) or ₹50,000 (for specified categories).
Key Points to Remember
Flat 30% Tax on Crypto Profits
- All profits from selling, swapping, or spending crypto assets are taxed at 30%.
- No deductions allowed except the cost of acquisition.
1% TDS on Crypto Transactions
- A 1% Tax Deducted at Source (TDS) applies to all crypto transfers above ₹10,000.
- Introduced on July 1, 2022, to track crypto transactions.
Mandatory Reporting from FY 2025-26
- A new Schedule VDA in the Income Tax Return (ITR) will be used for reporting crypto transactions.
- Crypto exchanges must also report transactions for better tax compliance.
No Loss Set-Off Allowed
- Losses from crypto transactions cannot be adjusted against any other income.
- Losses from one crypto transaction cannot offset profits from another.
Crypto Gifts Are Taxable
- Gifts exceeding ₹50,000 in crypto assets are taxable for the recipient.
Who Needs to Pay Crypto Taxes?
If you engage in any of the following activities, you are required to pay crypto taxes:
- Selling crypto for INR
- Trading one cryptocurrency for another (crypto-to-crypto swaps)
- Spending crypto on goods and services
- Receiving crypto as salary, airdrops, staking rewards, or mining rewards
- Gifting crypto (tax applies to the recipient if the value exceeds ₹50,000)
- Receiving crypto via airdrops
How Crypto Transactions Are Taxed in India
| Transaction Type | Tax Implication |
| Selling crypto for INR or fiat currency | 30% tax on profits |
| Crypto-to-crypto trades | 30% tax on gains from swaps |
| Paying for goods/services with crypto | 30% tax on the profit from the transaction |
| Receiving crypto as a gift (above ₹50K) | Taxed as income from other source |
| Earning from DeFi (staking, lending, etc.) | Taxed upon sale or swap at 30% |
| Holding crypto (HODLing) | No tax until a taxable transaction occurs |
| Transferring crypto between wallets | No tax |
ALSO READ: Crypto Gifts and Airdrops Tax India: Rules, Exemptions & Compliance
What Happens If You Don’t Pay Crypto Taxes?
Failing to pay crypto taxes in India can lead to severe financial and legal consequences. The government actively monitors crypto transactions, and non-compliance can result in penalties, legal action, and asset seizures. Here’s what could happen if you don’t report or pay your crypto taxes:
- Heavy Penalties & Interest – If you don’t report and pay taxes on your crypto gains, the Income Tax Department can impose a penalty equal to 50% to 70% of the tax due, along with interest on the unpaid amount.
- Tax Notices & Investigations – The government is actively tracking crypto transactions through exchanges and banking channels. If your tax records don’t match your crypto activities, you may receive a notice from the Income Tax Department for tax evasion.
- Prosecution & Legal Action – In extreme cases, non-payment of taxes can lead to imprisonment under the Income Tax Act. If authorities find deliberate tax evasion, they can initiate legal proceedings.
- Blocked Transactions – Exchanges operating in India comply with tax laws and may freeze or restrict accounts of users who fail to comply with tax regulations. This means you could lose access to your funds.
- Retrospective Tax Demands – The tax department has the right to audit and demand unpaid taxes for previous years. If you haven’t paid taxes on past crypto gains, you may still be liable for penalties and interest.
Conclusion
Crypto taxation in India is strict, and non-compliance can lead to hefty penalties, interest charges, and even legal action. To stay on the safe side, consistently report your crypto earnings, pay applicable taxes, and ensure TDS is deducted where necessary.
Don’t forget to join the Mudrex Telegram Channel for expert insights, tax updates, and crypto investment strategies. Stay informed, stay compliant, and invest wisely!
Siri is a writer venturing into the exciting realms of blockchain technology, cryptocurrency, and decentralized finance (DeFi), eager to explore the transformative potential of these innovations. She brings a unique perspective that bridges traditional industries and cutting-edge technology, often infused with a touch of humor through memes. She has a rich background in real estate and interior design, having previously contributed to NoBroker, where she crafted blogs and assets on these topics.
