Cryptocurrency has gained significant popularity in India, with many investors and traders exploring this digital asset class. However, as the crypto market expands, understanding the taxation framework becomes crucial to ensure compliance and effective financial planning. This guide provides a comprehensive overview of how crypto taxes work in India, covering aspects such as taxable events, the Tax Deducted at Source (TDS) rule and the concept of “no offset”.
Introduction to Cryptocurrency Taxation in India
In the Union Budget of 2022, the Government of India introduced specific provisions for the taxation of Virtual Digital Assets (VDAs), which include cryptocurrencies. These provisions were further reinforced in subsequent budgets, aiming to bring clarity and structure to the taxation of digital assets.
In India, cryptocurrency transactions are subject to a 30% tax on profits, effective from April 1, 2022. This flat tax rate applies regardless of the holding period, meaning both short-term and long-term capital gains are taxed equally. Additionally, a 1% Tax Deducted at Source (TDS) is levied on the transfer of Virtual Digital Assets (VDAs), such as cryptocurrencies, if the transaction value exceeds ₹50,000 in a financial year. This TDS is deducted at the time of transaction and can be adjusted against the final tax liability.
Consider an individual who sells Bitcoin for ₹25,000. If their total crypto transactions in the financial year exceed ₹50,000, a 1% TDS of ₹250 will be deducted at the time of the sale. Assuming they acquired the BTC for ₹15,000, their profit is ₹10,000. They would be required to pay a 30% tax on this profit, amounting to ₹3,000. The ₹250 TDS already deducted would be adjusted against this liability, leaving the individual to pay the remaining ₹2,750 as tax.
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Taxable and Non-Taxable Crypto Activities
Understanding which crypto activities are taxable and which are not is essential for accurate tax reporting. Below is a table summarizing various crypto-related activities and their taxability:
| Crypto Activity | Taxable | Tax Rate | Notes |
| Trading (Selling) | Yes | 30% + 1% TDS | Profits from trading cryptocurrencies are taxed at a flat rate of 30% + 1% TDS irrespective of the individual’s income tax slab. |
| Mining | Yes | 30% | Any gains from mining are subject to a flat 30% tax. If the mined crypto’s value appreciates between acquisition and sale/exchange, this profit is taxed at 30%. |
| Airdrops | Yes | 30% | Profits from selling airdropped tokens are taxed at 30%. The taxable gain is calculated as: Capital Gains = FMV at Sale – FMV at Receipt. The FMV (Fair Market Value) at receipt is treated as your cost basis. |
| Holding Cryptocurrencies | No | N/A | Merely holding cryptocurrencies does not attract any tax. |
| Transferring Crypto to External Accounts | No | N/A | Transferring cryptocurrencies between wallets you own does not constitute a taxable event. |
| Purchasing Crypto with INR | No | N/A | Buying cryptocurrency with INR does not incur any tax at the time of purchase. |
Understanding the Tax Deducted at Source (TDS) Rule
To enhance transparency and ensure tax compliance in cryptocurrency transactions, the Government of India introduced a 1% Tax Deducted at Source (TDS) on crypto transactions exceeding ₹50,000 in a financial year. This rule, effective from July 1, 2022, mandates that the buyer deduct 1% of the transaction amount when purchasing VDAs from a resident Indian seller. The deducted tax is then deposited with the government. This measure aims to create a trail of crypto transactions, making it easier for tax authorities to track and verify transactions.
The Concept of “No Offset” in Crypto Taxation
In India, the No Offset Rule in cryptocurrency taxation means that losses from one virtual digital asset (VDA) cannot be used to offset gains from another. Each transaction is taxed individually, regardless of any losses you might have incurred elsewhere.
To understand the difference, let’s look at the stock market: If you make a profit on one stock and a loss on another, the loss can reduce the total taxable amount. For example, if Stock A generates a profit of ₹50,000 and Stock B incurs a loss of ₹30,000, your net taxable income would be ₹20,000 (₹50,000 – ₹30,000).
In contrast, crypto taxation works differently. Losses from one cryptocurrency cannot be offset against gains from another. For instance, if you earn ₹50,000 from Bitcoin but incur a ₹30,000 loss from Ethereum, your taxable income remains ₹50,000. The ₹30,000 loss is not considered.
The key takeaway here is that while the stock market allows for the net profit to be taxed, in crypto, each profitable trade is taxed independently, even if other assets result in losses.
Recent Developments and Regulatory Updates
The Indian government’s stance on cryptocurrency taxation has evolved, with recent budgets maintaining the existing tax rates and introducing measures to tighten transaction monitoring. For example, the Union Budget 2025-26 did not alter the 30% tax on crypto gains or the 1% TDS on transactions. However, it proposed amendments to the Income Tax Act to mandate that designated reporting entities disclose transaction details related to VDAs, aiming to enhance transparency and curb tax evasion.
Conclusion: Taxation on Crypto in India
Understanding crypto taxes in India requires knowing the regulations, taxable events, and compliance rules. With the Indian government’s firm stance on the taxation of Virtual Digital Assets, investors are better positioned to make informed decisions and ensure their investments are both profitable and compliant.
As the digital currency market continues to evolve, staying informed about the latest tax regulations will be crucial for anyone looking to invest in cryptocurrencies in India. This guide serves as a comprehensive resource, aiming to demystify the complexities of crypto taxation and empower investors with the knowledge needed to navigate the crypto economy with confidence.
FAQs
1. How much tax is charged on cryptocurrency in India?
A flat rate of 30% plus cess and a 1% TDS on transactions exceeding specified thresholds.
2. How to calculate taxes on cryptocurrency?
Taxes are calculated on the gains, which is the sale price minus the cost price.
3. How to report cryptocurrency on tax returns?
For the financial year 2022-23 and onwards, investors need to use the ITR-2 or ITR-3 forms, depending on whether the gains are categorized as capital gains or business income.
4. Is TDS deducted if I transfer crypto between my own wallets?
No, TDS is not applicable on wallet transfers if they belong to the same owner.
5. Can I claim a refund on TDS if my tax liability is lower?
Yes, you can claim a refund for the excess TDS deducted when filing your income tax returns.
6. What if I fail to deduct or pay TDS?
Complying with TDS regulations is mandatory. Non-compliance can lead to hefty penalties, including fines and imprisonment.
