Income Tax on Crypto Currencies in India

Table of Contents

Introduction

Cryptocurrency taxation in India has become a crucial topic for investors, traders, and businesses. With the introduction of Section 115BBH of the Income Tax Act, 1961, the government has imposed a flat 30% tax on virtual digital assets (VDAs) like Bitcoin, Ethereum, and other cryptocurrencies. Additionally, a 1% TDS under Section 194S has been mandated for transactions above a specified threshold. These regulations have significantly impacted the crypto industry, raising concerns about tax compliance and reporting.

In this guide, we provide an in-depth analysis of cryptocurrency taxation in India, covering applicable tax rates, latest amendments, reporting requirements, and tax implications on different types of crypto transactions, ensuring full compliance with income tax laws, rules, and notifications issued by the government.

1. What is Cryptocurrency?

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Cryptocurrency is a decentralized digital currency that operates on blockchain technology, enabling secure peer-to-peer transactions without the involvement of central authorities like banks or governments. These digital assets are stored in cryptographic wallets and can be traded on crypto exchanges worldwide.

Key Characteristics of Cryptocurrencies:

  1. Decentralization: No central entity controls crypto transactions.
  2. Blockchain-Based: Transactions are recorded on a distributed ledger.
  3. Anonymity & Security: Transactions are encrypted for security.
  4. Borderless Transactions: Cryptos facilitate cross-border payments.
  5. High Volatility: Prices fluctuate based on market demand.

Legal Recognition in India

  • The Reserve Bank of India (RBI) had initially banned cryptocurrencies through its 2018 circular, but the Supreme Court struck down the ban in March 2020 (Internet and Mobile Association of India v. RBI, (2020) 10 SCC 274).
  • However, the Indian government has not granted cryptocurrencies legal tender status but has instead classified them as Virtual Digital Assets (VDAs) under Section 2(47A) of the Income Tax Act, 1961.

2. Is Cryptocurrency Taxed in India?

Yes, cryptocurrency transactions are taxable under the Income Tax Act, 1961. The Finance Act, 2022 introduced Section 115BBH, which imposes a flat 30% tax on gains from VDAs. Additionally, Section 194S introduced a 1% TDS on crypto transactions, effective July 1, 2022.

Key Tax Provisions Governing Cryptocurrency in India:

Tax Aspect

Details

Applicable Sections

Tax on Crypto Gains

30% flat tax on profits from crypto transactions

Section 115BBH

TDS on Crypto Transactions

1% TDS on transfers above ₹50,000 (₹10,000 for specified persons)

Section 194S

Crypto Gifts

Taxable if value exceeds ₹50,000

Section 56(2)(x)

Crypto Losses

Cannot be set off or carried forward against any income

Section 115BBH(2)(b)

Crypto Mining & Staking Rewards

Taxed as “Income from Other Sources”

Section 56(2)

Important Clarifications by CBDT & Government

  • No Indexation Benefit: Unlike capital gains from stocks or mutual funds, crypto gains do not get indexation benefits.
  • No Expense Deductions Allowed: Apart from the cost of acquisition, no deductions are permitted on transaction fees, brokerage, or exchange charges.
  • Foreign Crypto Exchange Transactions: If crypto transactions occur on an overseas exchange, the Indian taxpayer is still liable to pay tax under Section 5 of the Income Tax Act, 1961, which governs global income taxation.

3. Crypto Tax Rate in India

Tax Rate Under Section 115BBH

  • Flat 30% tax on all crypto gains, irrespective of income slab.
  • Applicable to individuals, HUFs, and businesses engaged in crypto trading or investing.
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Breakdown of Tax Rates on Different Crypto Transactions

Type of Crypto Transaction

Tax Rate

TDS Applicability

Buying & Holding Crypto

Not Taxable

No TDS

Selling Crypto (Profits/Gains)

30% (Flat Tax)

1% TDS (if applicable)

Crypto Gifts (Above ₹50,000)

Taxable for the recipient

No TDS

Mining/Staking Income

Taxable as “Other Income”

No TDS

Airdrops/Rewards

Taxable under Other Sources

No TDS

Key Considerations for Crypto Tax Calculation

  1. Cost of acquisition is deductible, but other expenses are not.
  2. Each trade is taxed separately—losses from one cannot be adjusted against profits from another.
  3. Failure to pay tax on crypto transactions can result in penalties and interest under Sections 234A, 234B, and 234C.

4. Latest Updates on Crypto Tax in India (Budget 2025)

The Indian government has continued to refine crypto tax policies through CBDT circulars, amendments, and budget announcements. Some of the latest updates include:

✅ Flat 30% tax remains unchanged—no relaxation in rates.
✅ TDS under Section 194S is still applicable, but the government is reviewing changes for retail investors.
✅ Foreign crypto transactions under scrutiny—new reporting norms introduced for offshore crypto exchanges.
✅ GST on Crypto Transactions: Still under discussion, but potentially taxed at 18% for exchanges and service providers.

5. Overview of Cryptocurrency Taxation in India

Cryptocurrency taxation depends on how the asset is acquired and used. Below is a detailed overview:

Types of Crypto Transactions & Their Tax Treatment

  1. Trading & Investing → Taxed at 30% under Section 115BBH.
  2. Mining Crypto Assets → Taxed as business income or income from other sources.
  3. Crypto Staking & Airdrops → Taxable as rewards under income from other sources.
  4. Crypto Gifts → Taxable under Section 56(2)(x) if value exceeds ₹50,000.
  5. Crypto Payments for Goods/Services → Attracts GST at 18%.

Legal References & Compliance Obligations

  • Section 115BBH → Flat 30% tax on crypto gains.
  • Section 194S → 1% TDS on crypto transactions.
  • Section 56(2)(x) → Crypto gifts taxation.
  • Circular No. 13/2022 → TDS applicability on crypto trades.
  • Income Tax Return (ITR) Disclosure → Crypto transactions must be reported in Schedule VDA of ITR-2/ITR-3.

6. Tax Guide for DeFi Transactions in India

Decentralized Finance (DeFi) is an emerging sector that allows users to engage in financial activities such as lending, borrowing, and staking without intermediaries. However, DeFi transactions are not exempt from taxation in India.

How DeFi Transactions Are Taxed in India

The taxation of DeFi-related crypto transactions depends on their nature:

  1. Earning Interest on Crypto Lending
    • Income from DeFi lending (e.g., AAVE, Compound) is taxable as ‘Income from Other Sources’.
    • Taxable at the individual’s slab rate or 30% if classified as VDA income under Section 115BBH.
    • No deduction allowed except the cost of acquisition.
  2. Borrowing Crypto on DeFi Platforms
    • Borrowing itself is not taxable, but liquidation of collateral or interest paid in crypto may have tax implications.
    • If borrowing leads to crypto gains (e.g., leveraged trading), it is taxed at 30% under Section 115BBH.
  3. Yield Farming & Liquidity Mining
    • Earnings from liquidity pools are taxed as business income or other income.
    • If staking rewards are received in crypto, the value at receipt is taxable at fair market value (FMV) at 30%.
  4. Swapping Crypto on DeFi Exchanges
    • Crypto-to-crypto swaps are treated as taxable transactions, with gains calculated as:
      (FMV of received asset – Cost of acquired asset) = Taxable Gain (30%).
  5. Providing Liquidity on DeFi Protocols
    • If liquidity tokens are received, their fair market value is not taxed at entry.
    • However, gains at withdrawal are taxed as capital gains at 30%.

Tax Reporting for DeFi Transactions

  • Investors must declare all DeFi earnings in their ITR (Income Tax Return).
  • TDS under Section 194S (1%) may apply on withdrawals exceeding ₹50,000 (₹10,000 for specific persons).
  • Failure to report DeFi transactions could lead to penalties and scrutiny by the Income Tax Department.

7. Taxation on Crypto Staking & Mining in India

Staking and mining are two key activities in the crypto ecosystem. Both are subject to taxation in India but are treated differently under tax laws.

Crypto Staking Taxation

  • Staking rewards are taxable as “Income from Other Sources” or Business Income depending on volume.
  • Tax Rate: Flat 30% tax under Section 115BBH.
  • TDS Applicability: No TDS, but reporting is mandatory.
  • Tax Calculation: Tax is applied on the FMV of rewards received at the time of staking reward distribution.

Crypto Mining Taxation

Mining involves solving complex cryptographic puzzles to earn rewards. The taxation rules include:

  • Mining Rewards Taxability:
  • If earned as an individual, it is taxed as business income or “income from other sources.”
  • If part of a registered business, mining income is subject to GST (if applicable).
  • Allowable Deductions:
  • Electricity, hardware, and maintenance costs are NOT deductible under Section 115BBH.
  • Sale of Mined Crypto:
  • If sold, gains are taxed at 30%.

TDS under Section 194S (1%) applies on sale.

8. Capital Gains Tax on Crypto in India

Capital gains taxation applies when crypto is sold or exchanged. Crypto gains are taxed under Section 115BBH at 30% with no indexation benefit.

Types of Capital Gains on Crypto

  1. Short-Term Capital Gains (STCG) – 30% Tax
    • Applies to gains from selling crypto regardless of holding period.
    • Flat tax rate without slab benefit.
  2. Crypto-to-Crypto Trades – Fully Taxable
    • Example: Exchanging Bitcoin for Ethereum triggers a taxable event, with FMV used for computation.
  3. Foreign Crypto Exchange Transactions
    • Gains from trades on Binance, KuCoin, Kraken, or Coinbase are taxed at 30%.
    • Foreign exchange transactions must be reported in ITR under Schedule FA (Foreign Assets).
  4. Crypto Gifts – Taxable Under Section 56(2)(x)
    • If received from non-relatives and exceeds ₹50,000, the gift is fully taxable at 30%.
    • Gifts within family members (parents, spouse) are not taxed.

9. How to Calculate Tax on Crypto Gains?

Tax Calculation Formula

The formula for computing crypto tax in India is:

“Taxable Gain = Selling Price (FMV) − Cost of Acquisition”

Example Calculation

  • Bought 1 Bitcoin at ₹15,00,000 in January 2024.
  • Sold 1 Bitcoin at ₹20,00,000 in December 2024.
  • Taxable Gain = ₹5,00,000.
  • Tax Payable = ₹1,50,000 (30% of ₹5,00,000).

No deductions (such as trading fees) are allowed, except for the cost of acquisition.

10. Crypto Losses: What Indian Investors Need to Know

Under Section 115BBH(2)(b), crypto losses cannot be set off against any other income, including profits from other crypto trades.

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Key Restrictions on Crypto Losses:

  1. No set-off against salary, capital gains, business income, or any other head.
  2. No carry-forward to the next financial year is allowed.
  3. Losses from one crypto asset cannot be adjusted against gains from another crypto asset.

Example:

  • If you make a ₹1 lakh profit on Bitcoin and a ₹50,000 loss on Ethereum, you must pay tax on ₹1 lakh—the loss cannot be deducted.

11. GST Implications on Cryptocurrency Transactions

GST (Goods and Services Tax) applies in specific cases involving crypto transactions. Crypto trading itself is not subject to GST, but services related to crypto may be.

Transaction Type

GST Applicability

GST Rate

Crypto Exchange Services

Yes

18%

NFT Sales

Yes

18%

Crypto Trading (Spot & Futures)

No

N/A

Mining Services (if registered)

Yes

18%

Crypto as Payment for Goods/Services

Yes

5%-18% (based on goods/services category)

12. Penalties for Non-Compliance with Crypto Tax Laws

Failure to comply with tax regulations can result in serious legal consequences:
  1. Non-Disclosure of Crypto Income:
    • Penalty: 50%-200% of tax due + prosecution under the Income Tax Act.
  2. Failure to Deduct TDS (Under Section 194S):
    • Penalty: Equal to TDS amount not deducted, along with interest and late fees.
  3. Late Filing of Crypto Income in ITR:
    • Late Fee: ₹5,000 (under Section 234F) + interest at 1% per month.
  4. Foreign Crypto Holdings Non-Disclosure (FEMA Violation):
    • Fine: ₹10 lakh minimum (may go up to 3 times transaction value).

13. Timeline of Crypto Tax Regulations in India

Year

Key Crypto Tax Development

2022

Finance Act introduces 30% tax (Section 115BBH) + 1% TDS (Section 194S).

2023

Mandatory disclosure of crypto assets in ITR.

2024

First crypto tax notices issued for non-compliance.

2025

Revised guidelines for crypto taxation & DeFi transactions.

14. How to Report Crypto Income in Income Tax Return (ITR)?

To ensure compliance, crypto traders must report their crypto transactions accurately.

Which ITR Forms to Use?

Category

Applicable ITR Form

Salaried individuals with crypto gains

ITR-2

Freelancers, Business Owners, or Traders in Crypto

ITR-3

Investors holding foreign crypto assets

ITR-2 (Schedule FA)

All crypto transactions must be declared under ‘Schedule VDA’ in ITR Forms.

15. When Do I Need to Report Crypto Tax to the Income Tax Department?

  • Annual ITR Filing Deadline: July 31st every year (Non-Audited Case). October 31st every year (For Audited Case).
  • TDS Payment (Section 194S): To be deposited by the 7th of the following month (In case of March Month, to be deposited by the following 30th April)
  • Advance Tax Payments (If applicable): Quarterly payments by June 15, September 15, December 15, and March 15.

Final Thoughts: Master Crypto Taxation & Stay Compliant

Cryptocurrency taxation in India is no longer optional—it’s a legal obligation. Whether you’re an investor, trader, or NFT creator, understanding your tax liabilities is essential to avoid penalties and ensure compliance.

The government is continuously refining tax laws, from 30% tax on gains to 1% TDS on transactions and even GST on crypto-related services. Ignoring these changes could lead to costly consequences.

Why Staying Updated Matters

  • Incorrect tax reporting may trigger scrutiny from tax authorities.
  • Non-compliance can lead to hefty penalties.
  • Crypto tax laws are evolving—staying informed gives you a competitive edge.

Stay Ahead with TaxGroww
At TaxGroww, we provide expert insights, latest tax updates, and in-depth compliance guides to help you navigate crypto taxation seamlessly.

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