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Overview of Tax Regulations in India: What Cryptocurrency Investors Need to Know for 2024-2025
Estimated Reading Time: 7 minutes
- Cryptocurrencies are classified as Virtual Digital Assets (VDAs) under Indian tax law.
- Income generated from VDAs is subject to a uniform tax rate of 30%.
- 1% Tax Deducted at Source (TDS) applies to certain VDA transactions exceeding specified thresholds.
- Meticulous record-keeping is essential for compliance and reporting.
- Losses due to theft or hacks do not qualify for tax relief under current law.
Table of Contents
- Understanding Virtual Digital Assets (VDAs) as Defined by Indian Law
- The Shift in Legal Framework: Income Tax (No. 2) Bill, 2025
- Taxable Events for Crypto Traders in India
- Crypto Tax Rates and Classifications
- Understanding the 1% TDS on VDAs
- How to Calculate Crypto Taxes in India
- Crypto Tax Reporting and Compliance Requirements
- Challenges and Common Issues for Crypto Traders in India
- Final Words
Understanding Virtual Digital Assets (VDAs) as Defined by Indian Law
As per Section 2(47A) of the Income Tax Act, 1961, cryptocurrencies and similar digital tokens are classified as virtual digital assets. This includes widely known cryptocurrencies like Bitcoin and Ether, as well as non-fungible tokens (NFTs) and other cryptographic tokens. While investing in VDAs is legal, these assets do not hold the status of valid payment methods, leading to a legally ambiguous situation in India.
In 2025, cryptocurrencies are allowed to be bought, sold, and held, but their use is closely monitored for tax and anti-money laundering (AML) purposes. Regulatory oversight comes from several agencies, such as the Income Tax Department, the Central Board of Direct Taxes (CBDT), the Financial Intelligence Unit (FIU-IND), the Reserve Bank of India (RBI), and the Securities and Exchange Board of India (SEBI) that harmonize their efforts to implement crypto taxation.
The Shift in Legal Framework: Income Tax (No. 2) Bill, 2025
A major development came with the presidential assent for the Income Tax (No. 2) Bill, 2025, which effectively replaced the previous Income Tax Act of 1961. This shift reflects a growing recognition of the significance of cryptocurrencies within the Indian economy and the necessity for a more structured taxation framework as the market continues to expand.
Taxable Events for Crypto Traders in India
In the Indian taxation landscape, transactions involving cryptocurrencies are classified as taxable events that create tax liabilities. Understanding what constitutes a taxable event is crucial for compliance under the Indian Income Tax Act.
Key Taxable Events
- Trading: Exchanging one cryptocurrency for another, or for fiat currency, triggers a taxable event.
- Staking Rewards: Any income deriving from staking is considered taxable once received.
- Airdrops and Hard Forks: Tokens credited from these methods are treated as income.
- Mining Income: Mining cryptocurrency is considered income, and subsequent sales are subject to capital gains tax.
- Payments in Crypto: Any income received through crypto payments is taxable as business or professional income.
Conversely, certain activities, such as merely holding digital assets or transferring cryptocurrencies between personal wallets, are classified as non-taxable since they do not produce any income.
Important Considerations
Remember that if your crypto is lost due to theft or hacks, Indian law does not provide any tax relief. Moreover, non-compliance can lead to severe penalties, including interest charges and prosecution for willful evasion.
Documentation Needs
When engaging in crypto transactions, it’s vital to maintain accurate records. For reporting purposes, crypto traders are required to fill out specific forms concerning their transactions involving VDAs.
Crypto Tax Rates and Classifications
Income generated from cryptocurrencies can be categorized into either business income or capital gains. Regular trading may render your earnings as business income, whereas occasional trading is typically classified under capital gains.
Taxation at Flat Rates
As per the current regulations effective from August 22, 2025, both short-term capital gains (STCG) and long-term capital gains (LTCG) on VDAs attract a uniform tax rate of 30% as outlined in Section 115BBH. It’s important to note that taxpayers are not allowed deductions, save for the cost of acquisition, which can lead to a hefty tax liability without the benefit of offsetting losses from one VDA against another.
To ensure transparency, a 1% tax deducted at source (TDS) applies to all crypto transactions exceeding a certain threshold.
Understanding the 1% TDS on VDAs
India’s tax structure includes a 1% TDS on certain VDA transactions under Section 194S. Here’s an overview of how it functions:
- Mandatory TDS Mechanism: Buyers must deduct 1% of the sale amount as TDS when purchasing a VDA.
- Thresholds: The TDS applies when the total transactions exceed ₹50,000 in a financial year (with certain cases dropping to ₹10,000).
- Non-cash Transactions: TDS applies to non-cash purchases as well, requiring buyers to deduct TDS based on the sale value.
- Exceptions and Exemptions: Specified persons may be exempt from obtaining a Tax Deduction and Collection Account Number (TAN) for TDS purposes under certain conditions.
Compliance with Foreign Transactions
It’s critical to note that trades on foreign exchanges are not exempt from Indian tax obligations. Indian investors are obliged to declare their profits from offshore activities, which may invoke scrutiny under the Foreign Exchange Management Act (FEMA).
How to Calculate Crypto Taxes in India
Calculating your crypto taxes involves determining your cost basis, which includes the original purchase price plus related transaction costs. Subsequently, you must ascertain your gains or losses based on this cost when selling or transferring the asset.
Tracking Methods
Traders can employ FIFO, LIFO, or specific identification for tracking transactions, depending on their record-keeping accuracy.
Crypto-to-Crypto Trades
These are treated as both selling one asset and buying another, with both valued at their fair market price at the time of trading.
Indian law does not allow broader deductions beyond transaction costs, adding rigidity to tax calculations.
Crypto Tax Reporting and Compliance Requirements
In India, all crypto transactions must be reported under current taxation rules, with no exceptions for losses. Taxpayers must report all income under the VDAs category using the appropriate income tax return forms like ITR-2 for capital gains and ITR-3 for business income. Notably, starting from FY 2025-26, a new Schedule VDA will be introduced, mandating the reporting of each crypto transaction individually.
Recordkeeping and Deadlines
Maintaining meticulous records—including transaction details, wallet addresses, and exchange statements—is paramount, especially during audits.
- For individual taxpayers not requiring an audit, the deadline to file income tax returns is July 31, 2025.
- Businesses requiring audits must adhere to the deadline of October 31, 2025.
Non-compliance can incur penalties and potential fines, underscoring the necessity for timely and accurate reporting.
Challenges and Common Issues for Crypto Traders in India
India’s crypto taxation landscape is rife with complexities and challenges that complicate compliance. A few key difficulties include:
- Lack of Clarity: Tax laws surrounding decentralized finance (DeFi) and NFTs remain ambiguous, contributing to inconsistent reporting.
- High-volume Trade Complexity: Managing trades across multiple platforms makes it challenging for traders to calculate gains accurately.
- Cross-border Transaction Issues: Engaging with offshore exchanges can trigger complications related to FEMA and international tax requirements.
- Lost or Stolen Assets: Indian tax law does not offer relief for crypto losses, creating ambiguity in reporting such scenarios.
Final Words
As the regulation landscape for cryptocurrencies continues to evolve, staying informed is critical for web3 users navigating the Indian market. The implications of the new tax framework, especially the flat rates and TDS requirements, highlight the importance of compliance and accurate record-keeping for investors and traders alike.
For daily updates on the evolving landscape of web3 technologies and blockchain finance, be sure to check Wunlock.net, where we keep you informed on the latest in the digital ecosystem.
Engaging in this space can be rewarding, and with the right knowledge and strategies, you can navigate the challenges ahead successfully.
