Cryptocurrency has rapidly evolved from a niche investment to a mainstream asset class in India, prompting the government to introduce a robust tax framework. The taxation of cryptocurrencies-referred to as Virtual Digital Assets (VDAs) is governed by clear rules, with stringent compliance requirements and penalties for non-adherence. This comprehensive guide details the tax rules, TDS rates, documentation requirements, and compliance strategies for crypto traders and investors in India, ensuring you stay ahead of regulatory changes and your competitors.
The Indian government classifies cryptocurrencies, including Bitcoin, Ethereum, NFTs, and other digital tokens, as Virtual Digital Assets (VDAs) under Section 2(47A) of the Income Tax Act. The tax regime, introduced in the Union Budget 2022 and effective from April 1, 2022, covers all forms of crypto trading, investing, gifting, and spending.
• Flat 30% Tax on Profits: All gains from the transfer (sale, exchange, or spending) of cryptocurrencies are taxed at a flat rate of 30%, with no distinction between short-term or long-term holding periods.
• No Deductions: Only the cost of acquisition (purchase price) is deductible. No other expenses-such as trading fees, platform charges, or blockchain fees-are allowed as deductions.
• No Loss Set-Off: Losses from crypto transactions cannot be set off against any other income, nor can they be carried forward to future years.
• Taxation on Gifts: Crypto assets received as gifts are taxable in the recipient’s hands under “Income from Other Sources,” unless exempted (e.g., gifts from specified relatives).
| Nature of Transaction | Tax Rate | Surcharge & Cess | Deductible Expenses |
|---|---|---|---|
| Sale/Transfer of Crypto | 30% | As per slab | Only cost of acquisition |
| Crypto Received as Gift | As per slab (other income) | As per slab | NA |
• Flat 30% tax is applicable to all profits from the transfer of VDAs, regardless of income slab or holding period.
• Surcharge and Health & Education Cess are applicable as per the taxpayer’s total income.
| Transaction Type | TDS Rate | Threshold (per FY) | Applicability |
|---|---|---|---|
| Sale/Transfer (INR or Crypto) | 1% | ₹50,000 (individual/HUF, not audited) ₹10,000 (others) | On consideration amount, not just profits |
• Effective Date: 1% TDS on crypto transfers is applicable from July 1, 2022, under Section 194S.
• TDS is deducted on the gross transaction value, not just on profits.
• TDS applies to all transfers, including crypto-to-crypto trades, if the threshold is breached.
| Transaction Type | Who Deducts TDS? | Reporting/Deposit Responsibility |
|---|---|---|
| Trade on Indian Exchange | Exchange | Exchange deducts and reports |
| Peer-to-Peer (P2P) Trade | Buyer | Buyer deducts and deposits TDS |
| Trade on Foreign Exchange | Buyer | Buyer deducts and deposits TDS |
| Crypto-to-Crypto Trade | Both parties (buyer & seller) | Both must deduct and deposit |
• Indian exchanges auto-deduct TDS and provide transaction statements to users.
• For P2P and foreign exchange trades, the buyer must deduct TDS and deposit it with the government.
a. Deduct 1% TDS at the time of payment or credit (whichever is earlier) if the annual threshold is crossed.
b. Deposit TDS with the government using Form 26QE within 30 days from the end of the month in which the deduction occurred.
c. File TDS Return and provide TDS certificate to the seller, if applicable.
d. Reconcile TDS with Form 26AS and ensure it matches exchange statements and bank records.
| Scenario | Amount (₹) |
|---|---|
| Sale Value (Proceeds) | 2,00,000 |
| Less: Cost of Acquisition | 1,50,000 |
| Taxable Profit | 50,000 |
| Tax Payable (30%) | 15,000 |
| Add: Surcharge & Cess | As per slab |
| Net Tax Liability | 15,000+ |
• Only the purchase price is deductible. No deduction for brokerage, trading fees, or other costs.
• Example: If you bought Bitcoin for ₹1,50,000 and sold for ₹2,00,000, your taxable gain is ₹50,000, taxed at 30%.
• No set-off: Losses from crypto cannot be set off against any other income (salary, business, capital gains, etc.)
• No carry forward: Losses cannot be carried forward to future years.
| Taxpayer Type | TDS Threshold (FY) | TDS Applicability |
|---|---|---|
| Individual/HUF (not audited) | ₹50,000 | If annual transfer > ₹50,000 |
| Others (audited, company, firm, etc.) | ₹10,000 | If annual transfer > ₹10,000 |
• If your total crypto sales in a year do not exceed the threshold, no TDS is deducted.
• If the threshold is crossed, TDS applies to all subsequent transfers in that year.
Example 1: Sale on Indian Exchange
• Rohan sells Ethereum worth ₹1,00,000 on an Indian exchange.
• The exchange auto-deducts 1% TDS (₹1,000) and credits ₹99,000 to Rohan.
• At year-end, Rohan receives a TDS statement from the exchange to reconcile with his Form 26AS.
Example 2: P2P Trade
• Priya sells Bitcoin worth ₹60,000 directly to another individual.
• The buyer deducts ₹600 (1% TDS), pays Priya ₹59,400, and deposits ₹600 to the government using Form 26QE.
Example 3: Crypto-to-Crypto Trade
• Ajay swaps Ethereum for Bitcoin worth ₹2,00,000.
• Both Ajay and the counterparty must each deduct and deposit 1% TDS (₹2,000 each), as both are considered sellers.
• Crypto received as a gift is taxed in the recipient’s hands under “Income from Other Sources,” unless received from specified relatives or on certain occasions.
• The recipient must declare the fair market value of the crypto on the date of receipt as taxable income.
Proper documentation is essential for accurate tax reporting and defending your position in case of scrutiny. The following records are mandatory:
| Document Type | Purpose/Details |
|---|---|
| Transaction History | All buy, sell, and transfer details from exchanges |
| Proof of Acquisition | Invoices, receipts, or screenshots showing purchase price |
| Exchange Statements | Downloadable statements showing trades and TDS deductions |
| Bank Statements | Records of INR deposits/withdrawals related to crypto |
| Form 26AS | Annual tax statement showing TDS deducted |
| Wallet Information | Details of private wallets used for off-exchange transfers |
• Maintain digital and physical copies of all records for at least 6 years.
• Reconcile exchange statements with Form 26AS to ensure all TDS credits are correctly reflected.
• Use Schedule VDA in ITR-2 or ITR-3 to report crypto income.
• Declare all profits and TDS deducted; claim TDS credit as per Form 26AS.
• Non-disclosure or under-reporting can attract severe penalties, including fines and imprisonment for up to 7 years.
| Nature of Default | Penalty/Consequence |
|---|---|
| Failure to deduct TDS | Interest @ 1% per month + penalty u/s 271C |
| Failure to deposit TDS | Interest @ 1.5% per month + penalty u/s 276B |
| Non-reporting of crypto gains | Penalty up to 200% of tax evaded + prosecution |
| Late filing of TDS returns | ₹200 per day (u/s 234E) up to TDS amount |
• Heavy penalties and prosecution can be imposed for willful non-compliance or tax evasion.
• Prefer Indian exchanges that auto-deduct TDS and provide comprehensive statements.
• For P2P or foreign exchange trades, ensure you deduct and deposit TDS manually.
• Keep all transaction, acquisition, and bank records organized and up to date.
• Use crypto portfolio management tools and tax software to simplify record-keeping.
• Regularly match your exchange TDS statements with Form 26AS.
• Ensure all TDS credits are claimed in your income tax return.
• Given the complexity and evolving nature of crypto taxation, consult a tax advisor for personalized guidance and to optimize your tax planning.
| Aspect | Rule/Rate/Requirement |
|---|---|
| Tax on Profits | 30% flat, no distinction between short/long term |
| TDS on Transfers | 1% on gross transfer value (Section 194S) |
| TDS Threshold | ₹50,000/year (individual/HUF, not audited); ₹10,000/year (others) |
| Loss Set-Off | Not allowed |
| Carry Forward of Loss | Not allowed |
| Deductible Expenses | Only cost of acquisition |
| Crypto Gifts | Taxable in recipient’s hands (unless exempt) |
| TDS Deductor | Exchange (Indian), Buyer (P2P/foreign exchange) |
| TDS Deposit | Form 26QE within 30 days of deduction |
| Documentation | Transaction history, acquisition proof, exchange/bank statements |
| Reporting in ITR | Schedule VDA in ITR-2/3 |
| Penalties | Interest, fines, prosecution for non-compliance |
Scenario:
Sunil, an Indian resident, traded on both Indian and foreign exchanges in FY 2024-25. He made the following transactions:
• Bought Bitcoin for ₹1,00,000 and sold for ₹1,80,000 on an Indian exchange.
• Bought Ethereum for ₹50,000 and sold for ₹80,000 on a foreign exchange.
• Received Dogecoin worth ₹10,000 as a gift from a friend.
Compliance Steps:
a. TDS Deduction:
• Indian exchange auto-deducts 1% TDS (₹1,800) on the sale of Bitcoin.
• For Ethereum sale, Sunil deducts 1% TDS (₹800) and deposits via Form 26QE.
b. Tax Calculation:
• Bitcoin gain: ₹80,000 (taxed at 30% = ₹24,000)
• Ethereum gain: ₹30,000 (taxed at 30% = ₹9,000)
• Dogecoin gift: ₹10,000 (taxed as “Other Income” at slab rate)
c. Documentation:
• Maintains all exchange statements, acquisition proofs, and TDS certificates.
• Reconciles TDS with Form 26AS.
d. ITR Filing:
• Reports all gains under Schedule VDA in ITR-2.
• Claims TDS credit for both transactions.
e. Outcome:
• Full compliance with Indian crypto tax laws, minimizing risk of penalties.
India’s cryptocurrency tax regime is among the most stringent globally, with a flat 30% tax on profits and a 1% TDS on transfers above specified thresholds. The rules apply to all individuals, businesses, and entities dealing in VDAs, with no set-off or carry-forward of losses and strict documentation requirements. By understanding the law, maintaining meticulous records, and ensuring timely TDS deduction and reporting, crypto traders and investors can achieve full compliance and avoid costly penalties. As regulations continue to evolve, staying informed and consult us for any compliance related to crypto investing in India.
