Crypto Taxation In India: What Every Investor Should Know

Taxation of crypto assets in India is increasingly coming under the tax scanner as more people have started investing and trading in cryptocurrencies and other virtual digital assets (VDAs). With rising activity in the crypto market, it has now become important for investors to properly understand tax rules on crypto assets while filing their income tax returns (ITRs).

Cryptocurrency in India is classified as VDA and is not considered a legal tender. The sector is regulated and monitored through the Financial Intelligence Unit with strict taxation rules governing transactions in digital assets.

Crypto Taxation In India

The government clarified its official stance on cryptocurrencies and other VDAs in Union Budget 2022. Income from the transfer of VDAs, such as cryptocurrencies and non-fungible tokens (NFTs) is taxed at a flat 30 per cent along with a 4 per cent health and education cess on the tax amount, irrespective of the income slab. Also, a 1 per cent tax is deducted at source (TDS) on the sale consideration, under the existing rules.

This tax structure applies equally to short-term and long-term gains, with no distinction between holding periods. Also, losses from digital assets cannot be set off against any other income, including gains from other cryptocurrencies.

Ashish Niraj, partner, ASN & Company, Chartered Accountants, said that crypto income is classified based on the nature of activity. He said: “If you trade in VDAs regularly then you should show the income as ‘Income from Profit and Gains from Business’. If you hold it as investments then you should report it as ‘Income from Capital Gains’.”

He added that crypto received as gifts, airdrops or mining rewards should be reported under ‘Income From Other Sources’ and taxed as per slab, while gains on later sale are taxed at 30 per cent.

Common Mistakes In Crypto Tax Reporting

Investors often make multiple mistakes while reporting crypto gains while filing their ITRs.

Niraj highlighted a common mistake made by investors. He said: “Sometimes investors net off gains and losses from different crypto transactions and report a net figure, which is wrong. Tax is calculated on individual profit and not on net gain.”

Investors also commonly fail to report small crypto gains, assuming they are not taxable if the overall income is below the exemption limit. However, all crypto gains are taxable at 30 percent irrespective of one’s income slab. Another frequent error is incorrectly classifying crypto income under the wrong head in the ITR.

How Crypto Tax Rules Are Impacting Investors In India

India’s rising crypto adoption has been accompanied by the introduction of taxation in the sector. The tax framework has also influenced how investors participate in the crypto market in India.

Ashish Singhal, co-founder, CoinSwitch, said that the introduction of taxation provided regulatory recognition to the crypto asset class and improved investor confidence.

“The 1 per cent TDS on transactions and the inability to offset losses against gains have impacted trading behaviour, reducing activity among active traders and market participants with some moving to offshore platforms,” he said.

He said a more balanced tax framework is needed to ensure transparency and compliance while supporting liquidity and investor participation in India’s crypto ecosystem.