This article explains how cryptocurrency taxation works under Indian law for informational purposes. It is not investment advice regarding cryptocurrency or any other Virtual Digital Asset, and does not recommend buying, holding, or trading in these assets.
Cryptocurrency and other Virtual Digital Assets (VDAs) are taxed under one of the strictest specific regimes in Indian tax law, introduced in 2022 and continuing largely unchanged into FY 2025-26. Unlike gains from stocks or mutual funds, where losses can offset other gains and unused losses carry forward, cryptocurrency gains are taxed in a way that offers essentially no relief for losses, a structural feature that surprises many crypto investors who assume it works like other capital gains.
The Flat 30% Tax Rate
Gains from transferring (selling, swapping, or otherwise disposing of) any Virtual Digital Asset are taxed at a flat 30%, plus applicable surcharge and cess, regardless of your income tax slab and regardless of how long you held the asset. Unlike equity, where holding over 12 months qualifies for a lower LTCG rate, there's no long-term versus short-term distinction for crypto, the 30% rate applies uniformly.
No Deduction for Expenses, Beyond the Cost of Acquisition
When calculating your taxable gain, you can only deduct the actual cost of acquiring the asset, no other expenses, transaction fees, internet costs, or any other related expenditure can be deducted from the gain, a meaningfully stricter rule than standard capital gains computation for other assets, where certain related expenses can sometimes be factored in.
The Rule That Surprises Most Investors: No Loss Set-off
This is the single most consequential and least understood rule. If you have a loss from one cryptocurrency transaction, you cannot offset it against gains from another cryptocurrency transaction, and you certainly cannot offset it against gains from stocks, mutual funds, or any other income source. Losses from VDA transactions also cannot be carried forward to future years. If you made ₹2 lakh from one crypto trade and lost ₹1.5 lakh on another within the same year, you still owe 30% tax on the full ₹2 lakh gain, the ₹1.5 lakh loss provides no tax relief whatsoever.
The 1% TDS on Every Transfer
Beyond the 30% tax on gains, a separate 1% TDS applies to the transaction value of most VDA transfers above specified thresholds, deducted by the exchange or the person making the payment, and deposited with the government. This TDS is adjustable against your final tax liability when you file your ITR, similar to how TDS works for other income, but it means a portion of your transaction value is withheld upfront regardless of whether you actually made a profit on that specific transaction.
What Counts as a Taxable Transfer
Selling crypto for rupees, swapping one cryptocurrency for another, and in many interpretations, using crypto to purchase goods or services, all constitute a taxable transfer event, triggering the 30% tax on any gain realised at that point. This is broader than many investors initially assume, a crypto-to-crypto swap is taxable, not just converting back to traditional currency.
Reporting Requirements Are Tightening
From April 1, 2026, cryptocurrency exchanges operating in India are required to share user transaction data directly with the Income Tax Department, with meaningful penalties for exchanges that fail to report (₹200 per day) and for incorrect disclosures (up to ₹50,000). This significantly reduces the likelihood of undisclosed crypto gains going unnoticed, since the department increasingly has direct visibility into exchange-reported transaction data matched against individual PANs.
How to Report Crypto Income in Your ITR
Income from Virtual Digital Assets is reported in a specific schedule dedicated to VDA income in the applicable ITR form, separate from your regular capital gains schedule, reflecting the distinct tax treatment. Given the strict no-loss-offset rule, accurate transaction-by-transaction record keeping, matching each disposal against its specific acquisition cost, matters considerably for correct reporting.
Why This Regime Is Structured So Strictly
The government's stated rationale for this strict tax treatment, high flat rate, no expense deductions beyond cost, no loss set-off, has generally centred on discouraging speculative activity in an asset class it has significant regulatory concerns about, rather than treating VDAs the same way as more established investment categories like listed equity or debt instruments. Regardless of the underlying rationale, understanding these specific mechanics matters for anyone who has engaged, or is considering engaging, in cryptocurrency transactions.
Frequently Asked Questions
Do I owe tax if I just hold cryptocurrency without selling or transferring it?
No, tax applies specifically on transfer (sale, swap, or disposal), simply holding an asset without any transaction doesn't trigger a tax event, similar in this respect to how unrealised gains on stocks aren't taxed until you actually sell.
Can I offset a crypto loss against a stock market loss?
No, VDA losses cannot be set off against gains or losses from any other asset class, including stocks, mutual funds, or property, this restriction is specific and isolated to VDA transactions only.
Does the 30% rate apply to NFTs too?
Yes, Non-Fungible Tokens generally fall under the broader definition of Virtual Digital Assets under Indian tax law, and are subject to the same 30% tax treatment, 1% TDS, and no-loss-offset rules as cryptocurrency.
Is cryptocurrency legal to hold and trade in India?
Cryptocurrency isn't recognised as legal tender in India, but holding and trading it isn't illegal, it's specifically taxed under this VDA regime, which itself confirms these transactions are recognised (and taxed) rather than prohibited, though the regulatory environment continues to evolve and is worth monitoring independently.
