Comprehensive Guide to Cryptocurrency Taxation in India for 2025

India’s Regulatory Framework for Cryptocurrency Taxation in 2025

For the financial year 2024-2025, Indian tax authorities categorize cryptocurrencies as Virtual Digital Assets (VDAs) under the Income Tax Act, 1961, with the Income Tax (No. 2) Bill, 2025, replacing the earlier act as of August 22, 2025. VDAs encompass cryptocurrencies such as Bitcoin (BTC), Ether (ETH), non-fungible tokens (NFTs), and other cryptographically generated digital tokens, excluding fiat currencies like the Indian rupee.

While buying, selling, and holding VDAs is legal, these assets are not recognized as valid payment methods in India. The regulatory environment remains cautiously permissive, with multiple agencies including the Income Tax Department, Central Board of Direct Taxes (CBDT), Financial Intelligence Unit (FIU-IND), Reserve Bank of India (RBI), and Securities and Exchange Board of India (SEBI) overseeing crypto taxation and compliance.

Defining Taxable Events in Crypto Transactions

Indian law identifies specific events that trigger tax liabilities on cryptocurrency transactions. These include:

• Trading: Exchanging one cryptocurrency for another or for fiat currency constitutes a taxable event.
• Staking Rewards: Considered taxable income upon receipt.
• Airdrops and Hard Forks: Tokens received through these mechanisms are taxable as income when credited.
• Mining Income: Taxed as income initially, with subsequent sales subject to capital gains tax.
• Payments in Crypto: Treated as business or professional income.

Conversely, holding digital assets without transfer or moving crypto between personal wallets does not generate taxable income. Notably, losses from theft or hacks are not recognized for tax relief, exposing traders to full taxation on gains without offsetting losses.

Tax Rates and Classifications for Crypto Income

Income from cryptocurrencies in India is classified either as business income or capital gains. Regular and systematic trading income is taxed as business income under prevailing income tax slabs. For most individual investors, profits from crypto sales are treated as capital gains.

From August 22, 2025, both short-term and long-term capital gains on VDAs are subject to a uniform 30% tax rate under Section 115BBH, irrespective of holding period. The only allowable deduction is the cost of acquisition, with no provision for offsetting losses across different VDAs or carrying them forward.

Additionally, a 1% tax deducted at source (TDS) applies to all VDA transfers exceeding specified thresholds (50,000 INR for specified persons and 10,000 INR for others), enhancing transparency and tax compliance. This TDS applies across centralized exchanges, peer-to-peer transactions, and even non-cash payments involving VDAs.

Mechanics and Thresholds of TDS on Crypto Transactions

Section 194S of the Income Tax Act mandates a 1% TDS on the sale amount of VDAs, deducted by the buyer and remitted to the government. Key provisions include:

• Applicability on transactions exceeding 50,000 INR per financial year for specified persons, and 10,000 INR for others.
• Requirement to pay TDS in cash even if payment is made through another VDA.
• Obligation for buyers to cover any shortfall in TDS if cash payment is insufficient in mixed payment scenarios.
• Exemptions from obtaining a Tax Deduction and Collection Account Number (TAN) for specified persons.
• Priority of Section 194S provisions over e-commerce related TDS rules (Section 194-O).
• Seller’s responsibility for TDS deduction if payments are held in suspense or temporary accounts.

Calculating Taxable Gains on Cryptocurrencies

To compute taxable gains, taxpayers must establish the cost basis, including the purchase price and related expenses such as transaction fees. Methods like first-in-first-out (FIFO), last-in-first-out (LIFO), or specific identification can be employed for tracking, provided they are applied consistently.

Crypto-to-crypto exchanges are treated as two separate transactions: a sale of one VDA and a purchase of another, both valued at their fair market value in Indian rupees at the time of the transaction. Allowable expenses added to the cost basis include transaction fees, wallet charges, and crypto tax software costs, but broader deductions are not permitted under current law.

Reporting Requirements and Compliance Deadlines

All crypto transactions must be reported in Indian income tax returns under a new Schedule VDA introduced for FY 2025-26. Capital gains are typically declared using ITR-2, while business income requires ITR-3. Accurate record-keeping of transaction details, exchange statements, wallet addresses, and rupee valuations is critical to ensure compliance and facilitate audits.

The deadline for filing returns without audit requirements is July 31, 2025, while entities subject to audit must file by October 31, 2025. Failure to comply can result in penalties, interest on unpaid taxes, fines, and possible prosecution for tax evasion.

Challenges Confronting Crypto Traders in India

Despite the clarified tax framework, traders face several challenges:

• Regulatory Ambiguity: Lack of clear guidelines for decentralized finance (DeFi) activities, NFT transactions, staking, and lending complicates compliance.
• Complex Record-Keeping: High-frequency trading across multiple platforms burdens accurate gain calculations and documentation.
• Cross-Border Transactions: Use of foreign exchanges and wallets introduces complexities related to the Foreign Exchange Management Act (FEMA), potential double taxation, and international reporting obligations.
• Loss Reporting: Absence of tax relief for stolen or lost crypto assets creates uncertainty in tax filings.

Overall, India’s evolving tax landscape demands vigilance from crypto investors and traders to ensure adherence to stringent reporting and payment obligations.