Cryptocurrency has swiftly evolved from being a speculative digital asset to a mainstream financial instrument. With increasing user adoption, the Indian government has recognized the need to regulate and tax this growing market. As of 2025, income tax on cryptocurrency in India is clearly structured, but still surrounded by confusion and misconceptions. This article clears the fog and explains the regulations in a simplified, comprehensive manner.
What is Cryptocurrency?
Cryptocurrency is a form of digital or virtual currency secured by cryptography. Popular examples include Bitcoin, Ethereum, and Solana. Unlike fiat currencies, they operate on decentralized systems like blockchain and are not issued by any central authority.
Evolution of Crypto Regulation in India
India’s stance on crypto has shifted dramatically over the past decade. Initially skeptical, the government imposed a banking ban on crypto in 2018, later reversed by the Supreme Court in 2020. By 2022, the Finance Act introduced formal taxation, and in 2025, these rules are firmly in place, albeit still debated.
Current Tax Laws on Cryptocurrency in India (as of 2025)
Applicable Sections of the Income Tax Act
The income from crypto transactions is governed by Section 115BBH of the Income Tax Act, introduced in the Finance Act 2022. This section deals specifically with Virtual Digital Assets (VDAs), which include cryptocurrencies, NFTs, and other blockchain-based assets.
Definition of Virtual Digital Assets (VDA)
A VDA is broadly defined to include any information, code, number, or token generated through cryptographic means and transferred digitally. NFTs and certain gaming tokens also fall under this umbrella.
30% Tax Rate: Flat or Variable?
As of 2025, any income from the transfer of VDAs is taxed at a flat rate of 30%, regardless of the taxpayer’s income slab. This does not include the 4% cess, making the effective tax rate 31.2%.
Crypto Gains: Tax Treatment Explained
Capital Gains vs Business Income
Capital Gains: For long-term holders.
Business Income: For regular traders.
In both cases, Section 115BBH mandates a 30% tax rate, eliminating benefits typically associated with long-term capital gains.
Holding vs Trading: What Changes?
Merely holding crypto doesn’t incur tax. Tax is triggered when you sell, swap, or transfer the asset. For regular traders, maintaining separate books is essential for clarity and compliance.
1% TDS Rule: A Game-Changer in Crypto Taxation
How TDS is Calculated on Crypto Transactions
Effective from July 1, 2022, a 1% Tax Deducted at Source (TDS) applies on every crypto transaction exceeding ₹50,000 annually (₹10,000 for some cases). This rule remains unchanged in 2025 and is deducted at the time of payment by the buyer.
Reporting TDS in ITR (Income Tax Return)
The deducted TDS can be viewed in Form 26AS and claimed while filing the ITR. However, TDS is not an additional tax; it’s an advance tax payment adjusted against your final liability.
Exemptions, Deductions, and Set-offs – What’s Allowed?
Can You Claim Expenses?
No. Section 115BBH explicitly disallows deduction of any expenses incurred other than the cost of acquisition. This means transaction fees, gas fees, and exchange commissions cannot be claimed.
Can Losses Be Carried Forward or Set Off?
Losses from crypto cannot be set off against other income nor can they be carried forward to future years. This clause has been widely criticized and could be a focus for policy revision.
Taxation of Airdrops, NFTs, and Staking Rewards
Valuation and Timing for Tax Purposes
Airdrops, staking rewards, or any free crypto is taxed at market value on the date of receipt. It is added to your income under “Income from Other Sources” and taxed as per the slab rates.
Treatment of Free Crypto (Gifts, Airdrops)
Gifts received in crypto exceeding ₹50,000 in value (without consideration) are taxable unless received from a relative or on special occasions as defined in Section 56(2)(x).
Crypto Exchanges and Their Tax Compliance in 2025
Responsibilities of Indian Exchanges
Indian exchanges must collect TDS, maintain detailed transaction logs, and provide compliance reports to the IT department. They’re now regulated under the Prevention of Money Laundering Act (PMLA) since 2023.
Impact on Users and Transparency
User KYC and transaction tracking have significantly improved. This makes it harder to evade taxes or hide crypto assets.
Penalties and Non-Compliance Issues
What Happens If You Don’t Report Crypto Income?
Failing to report your crypto income could result in severe consequences. The Income Tax Department treats such omissions as concealment of income, which may attract penalties up to 200% of the tax due under Section 270A of the IT Act.
Interest, Fine, and Jail – Legal Consequences
If tax is not paid on crypto gains, the defaulter may also face:
Interest under Section 234A/B/C
Prosecution under Section 276C, which can lead to rigorous imprisonment from 3 months to 7 years
Fines up to ₹25 lakh
How to Report Crypto Income in Your ITR 2025
Step-by-Step ITR Filing Process for Crypto Holders
Identify Crypto Income: Categorize income (capital gains/business/other sources).
Choose Correct ITR Form: Use ITR-2 or ITR-3 depending on the source.
Report Income under Schedule VDA
Disclose TDS Paid from Form 26AS
Declare Foreign Assets (if applicable)
Submit Before Due Date: Typically July 31st for individuals.
Best Practices to Maintain Crypto Records
Maintain transaction logs and invoices
Keep screenshots of wallet balances and exchange records
Use software or crypto tax calculators
Regularly download Form 26AS and AIS for cross-verification
Legal Grey Areas and Future Possibilities
Pending Litigations and Court Decisions
Several petitions are pending in High Courts challenging the 30% flat tax and the ban on set-offs. Final judgments may create precedence affecting tax treatment.
Will India Soften Crypto Taxation?
There is growing demand from industry stakeholders and crypto communities to reduce the 30% tax and allow loss set-offs. As of 2025, the government has taken no definitive stance, but discussions continue.
Global Comparison: How India Stacks Up
Crypto Taxation in the USA, UK, Singapore and India
| Country | Tax Rate | Loss Set-Off | TDS Rule |
|---|---|---|---|
| USA | 10-37% (Slab-based) | Allowed | No |
| UK | 10-20% (CGT) | Allowed | No |
| Singapore | 0% (No CGT) | NA | No |
| India | 30% | Not Allowed | 1% |
India is currently one of the most restrictive in its tax on crypto in India regime.
Expert Tips for Tax Planning with Crypto in 2025
How to Legally Minimize Your Tax Burden
Use FIFO method to optimize acquisition costs
Invest in less frequently traded tokens to reduce taxable events
Time your disposals for minimum tax exposure
Gift crypto to relatives (under tax-free limits)
When to Consult a Tax Advisor or CA
If you:
Trade on multiple international platforms
Have NFTs, staking income, or DeFi gains
Missed reporting in previous years Then, consult a qualified tax advisor to ensure compliance and avoid legal trouble.
FAQs on Income Tax on Crypto Currency in India 2025
A flat 30% plus cess, regardless of your income level.
A 1% TDS is auto-deducted on transactions over ₹50,000.
No. Losses can’t offset any income or be carried forward.
Yes, F&O profits are taxed at the same 30% flat rate.
Yes, if the value exceeds ₹50,000 and isn’t exempt.
Use ITR-2 for investments and ITR-3 for business income.
Conclusion: Navigating Crypto Tax in 2025
The tax on crypto currency in India has matured, but it remains strict. With 30% flat tax, TDS on crypto, and no loss set-offs, compliance is more important than ever. Understanding the implications of tax on crypto in India can help you stay on the right side of the law and plan your crypto strategy smartly.
