Cryptocurrency trading has grown rapidly in India. However, the Income Tax law treats crypto transactions under a special taxation regime, making compliance stricter than many other financial assets.
If you buy or sell Bitcoin, Ethereum, or any other crypto asset, it is important to understand the tax implications.
This guide explains how cryptocurrency is taxed in India, reporting requirements, TDS rules, and key Budget 2026 changes.
1️⃣ What is Cryptocurrency Under Income Tax Law?
Cryptocurrencies are classified as Virtual Digital Assets (VDA) under the Income Tax Act.
Examples include:
✔ Bitcoin
✔ Ethereum
✔ Solana
✔ Meme coins
✔ Exchange tokens
The taxation framework for VDA was introduced in Finance Act 2022.
Key provisions include:
Section 115BBH – Tax on crypto gains
Section 194S – TDS on crypto transactions
Section 56(2)(x) – Tax on crypto gifts
Schedule VDA – Mandatory disclosure in ITR
2️⃣ Tax Rate on Cryptocurrency in India
Income from transfer of cryptocurrency is taxed at:
30% + surcharge + 4% health and education cess
This rate applies regardless of holding period.
Unlike shares or mutual funds:
❌ No long-term capital gain benefit
❌ No concessional tax rate
Example
| Particulars | Amount |
|---|---|
| Purchase value | ₹5,00,000 |
| Sale value | ₹6,20,000 |
| Profit | ₹1,20,000 |
Tax = 30% of ₹1,20,000 = ₹36,000 + cess
3️⃣ Deduction Allowed While Calculating Crypto Tax
The law allows only one deduction.
Example:
| Particulars | Amount |
|---|---|
| Purchase price | ₹2,00,000 |
| Sale price | ₹2,70,000 |
| Taxable profit | ₹70,000 |
4️⃣ Expenses That Cannot Be Claimed
Under the crypto tax regime, most expenses are not allowed.
Examples include:
❌ Brokerage or exchange fees
❌ Internet expenses
❌ Office rent
❌ Electricity costs
❌ Salary paid to trading staff
❌ Interest on borrowed money
❌ Trading software costs
The law clearly states:
No deduction is allowed except cost of acquisition.
5️⃣ Crypto Loss Rules in India
Crypto taxation rules are very strict regarding losses.
Loss from crypto:
❌ Cannot be set off against other income
❌ Cannot be set off against gains from other coins
❌ Cannot be carried forward
Example
| Coin | Result |
|---|---|
| Bitcoin profit | ₹80,000 |
| Solana loss | ₹50,000 |
Taxable income remains ₹80,000.
6️⃣ 1% TDS on Crypto Transactions
Section 194S introduced 1% TDS on crypto transfers.
This applies on transaction value, not profit.
Example
Crypto sold for ₹10,00,000
TDS = 1% = ₹10,000
This is not final tax, only a credit.
Actual tax is calculated at 30% on profit.
7️⃣ Budget 2026: Stronger Crypto Reporting Rules
Budget 2026 proposes a stricter reporting framework for crypto transactions.
If reporting entities fail to submit crypto transaction details:
⚠ Penalty of ₹200 per day
If incorrect information is submitted:
⚠ Penalty up to ₹50,000
Effective from:
📅 1 April 2026
Although reporting is primarily for exchanges, the practical effect is:
✔ Income Tax Department will receive detailed trading data
✔ Non-disclosure by taxpayers may be detected easily
Conclusion
Cryptocurrency taxation in India is structured as a special compliance regime.
Key points to remember:
✔ 30% tax on crypto profits
✔ 1% TDS on transaction value
✔ No deduction except cost of acquisition
✔ No loss set-off or carry forward
✔ Mandatory reporting in Schedule VDA
✔ Stronger reporting rules from Budget 2026
Frequently Asked Questions (FAQs)
1️⃣ Is cryptocurrency legal in India?
Yes. Crypto trading is legal but heavily taxed under the VDA regime.
2️⃣ What is the tax rate on crypto in India?
Crypto gains are taxed at 30% plus surcharge and 4% cess.
3️⃣ Can crypto losses reduce tax?
No. Loss from crypto cannot be set off against any income or carried forward.
4️⃣ Is TDS applicable on crypto transactions?
Yes. 1% TDS under Section 194S applies on transfer of crypto assets.
5️⃣ Which ITR form should be used for crypto income?
Generally:
CA RAMAKRISHNA SANJAY
7760252581
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