Cryptocurrency Taxation in India: The Complete Guide
India's approach to cryptocurrency taxation has evolved significantly, with the introduction of a dedicated tax framework for Virtual Digital Assets (VDAs) in the Finance Act 2022. Whether you're a casual investor, active trader, miner, or blockchain business operator, understanding these tax obligations is crucial for compliance and effective financial planning.
This comprehensive guide covers everything you need to know about cryptocurrency taxation in India, including the 30% flat tax rate, 1% TDS provisions, calculation methodologies, ITR filing requirements, and special considerations for mining, staking, and NFTs.
Understanding Virtual Digital Assets (VDAs)
The Income Tax Act defines Virtual Digital Assets to include cryptocurrencies, NFTs, and other digital assets. Understanding what qualifies as a VDA is the first step in tax compliance.
What Counts as a VDA?
- ✓ Cryptocurrencies (Bitcoin, Ethereum, etc.)
- ✓ Non-Fungible Tokens (NFTs)
- ✓ Utility tokens
- ✓ Governance tokens
- ✗ Digital Rupee (CBDC) - not a VDA
- ✗ Gift cards/vouchers
- ✗ Securities (regulated by SEBI)
30% Flat Tax Rate: What You Need to Know
Section 115BBH of the Income Tax Act imposes a flat 30% tax rate on gains from the transfer of VDAs, applicable from Assessment Year 2023-24 onwards.
Key Limitations
- • No basic exemption: Tax applies from first rupee
- • No deductions: Except cost of acquisition
- • No set-off: Losses cannot offset other income
- • No carry forward: Losses expire same year
Tax Calculation Example
Buy 1 Bitcoin: ₹20,00,000
Sell 1 Bitcoin: ₹30,00,000
Gain: ₹10,00,000
Tax @ 30%: ₹3,00,000
Health & Education Cess @ 4%: ₹12,000
Total Tax: ₹3,12,000
1% TDS on Crypto Transactions
Section 194S mandates 1% Tax Deducted at Source (TDS) on transfers of VDAs when the annual transaction value exceeds specified thresholds.
TDS Applicability
Thresholds:
- • General: ₹50,000/year
- • Specified persons*: ₹10,000/year
* Individuals/HUF with business turnover < ₹1 crore/professional receipts < ₹50 lakh
Who Deducts:
- • Exchanges (facilitating the trade)
- • Buyer (in P2P transactions)
- • Specified persons as defined
TDS Compliance Requirements
- • Deposit TDS by 7th of the following month
- • File quarterly TDS returns (Form 26Q)
- • Obtain TAN if you're required to deduct TDS
- • Issue TDS certificate (Form 16A) to deductee
- • Maintain records of all transactions
Calculating Crypto Gains
Accurate calculation of gains is essential for tax compliance. Each type of transaction has specific tax implications.
Crypto-to-Fiat Trades
Selling crypto for Indian Rupees or foreign currency.
Formula: Sale Price - Cost of Acquisition = Taxable Gain
Example: Bought ETH at ₹1,00,000, Sold at ₹1,50,000
Gain: ₹50,000 | Tax @ 30%: ₹15,000
Crypto-to-Crypto Trades
Each crypto-to-crypto trade is a taxable event. The fair market value of the received crypto determines the sale value of the given crypto.
Example: Trade 1 ETH (cost ₹1,50,000) for 0.05 BTC when BTC = ₹40,00,000
Sale value of ETH = ₹2,00,000 (0.05 × ₹40,00,000)
Gain on ETH = ₹50,000 | Tax = ₹15,000
Cost basis for 0.05 BTC = ₹2,00,000
ITR Filing for Crypto Income
Reporting cryptocurrency income in your Income Tax Return requires using the correct form and schedule.
Which ITR Form?
- • ITR-2: If no business income from crypto
- • ITR-3: If crypto trading is your business
Schedule VDA
New dedicated schedule for reporting VDA transactions including:
- • Date of acquisition
- • Date of transfer
- • Consideration received
- • Cost of acquisition
Documents to Maintain
- Exchange transaction statements
- Wallet transaction records
- TDS certificates (Form 16A)
- Bank statements
- Cost basis calculations
- FMV sources for crypto trades
Mining, Staking, and Airdrops
Special categories of crypto income have unique tax treatments.
Mining Income
- • FMV at receipt: Taxed at slab rates
- • Subsequent sale: 30% VDA tax on gain
- • Cost basis = FMV when mined
- • Business expenses deductible if commercial
Staking Rewards
- • At receipt: Taxed at slab rates
- • On sale: 30% VDA tax applies
- • Cost basis = FMV when received
Airdrops
- • FMV at receipt: Taxed at slab rates
- • On sale: 30% VDA tax on gain
- • Cost basis = FMV when received
NFTs
- • Treated as VDAs
- • 30% tax on sale gains
- • 1% TDS on sales > ₹50,000
Crypto Gifts and Inheritance
Transferring crypto as gifts has specific tax implications under the Income Tax Act.
Gift Tax Rules
- • Gifts above ₹50,000 from non-relatives are taxable in recipient's hands
- • Taxed at slab rates (not 30% VDA rate)
- • Gifts from relatives are generally exempt
- • Gifts on marriage or through will/inheritance are exempt
- • Subsequent sale: 30% VDA tax applies with cost basis as FMV on date of gift
Loss Treatment: The Harsh Reality
One of the most criticized aspects of India's crypto tax regime is the treatment of losses.
What You CANNOT Do
- ✗ Set off crypto losses against other crypto gains
- ✗ Set off crypto losses against salary income
- ✗ Set off crypto losses against business income
- ✗ Carry forward crypto losses to next year
Example: Gain on Bitcoin: ₹5,00,000 | Loss on Ethereum: ₹3,00,000 | You still pay 30% tax on full ₹5,00,000 gain. The ₹3,00,000 loss expires.
Penalties for Non-Compliance
| Violation | Penalty |
|---|---|
| Late ITR filing | ₹5,000 (₹1,000 if income < ₹5 lakh) |
| Under-reporting of income | 50% of tax payable on under-reported amount |
| Non-payment of TDS | Interest @ 1.5% per month + penalty |
| Late filing of TDS returns | ₹200 per day of delay |
Best Practices for Crypto Tax Compliance
Record Keeping
- ✓ Maintain detailed transaction records
- ✓ Use crypto tax software for calculations
- ✓ Keep exchange statements and wallet records
- ✓ Document cost basis for every acquisition
- ✓ Save TDS certificates from exchanges
Compliance Strategy
- ✓ File ITR on time even if in losses
- ✓ Pay advance tax if liability > ₹10,000
- ✓ Consider tax implications before trading
- ✓ Consult a CA familiar with crypto taxation
- ✓ Stay updated on regulatory changes