Overview

• Cryptocurrency income in India is taxed at a flat 30% with no benefit of loss adjustment.

• Every transfer of a Virtual Digital Asset usually attracts 1% TDS, even if the profit is low.

• Proper records and correct ITR reporting are critical to avoid notices and penalties.

Cryptocurrency occupies its own category in India's tax code, with rules that don't apply to stocks, mutual funds, or standard business income. This system was first introduced in 2022 and continues to be implemented with strict compliance and reporting rules. Although many investors expect changes, the core structure of crypto taxation in India is still the same.

This article explains how cryptocurrency tax is paid in India, with the latest data and regulatory position.

How to Pay Cryptocurrency Tax in India

In India, cryptocurrency is legally defined as a Virtual Digital Asset (VDA). Income earned from VDAs is taxed under Section 115BBH of the Income Tax Act.

The main rules are:

• Flat 30% tax on profit from crypto transfers.

• 1% TDS on most crypto transactions.

• No set-off of crypto losses against other income.

• No deduction allowed except the cost of purchase.

These rules are still applicable and are actively enforced by the tax authorities.

Step 1: Identify Taxable Crypto Transactions

Tax is payable when a crypto asset is transferred. Transfer does not only mean selling for cash.

Taxable transfers include:

• Selling digital assets for INR or foreign currency.

• Exchanging one crypto for another.

• Using crypto to buy goods or services.

• Receiving crypto as a gift or an airdrop (in many cases).

Holding crypto without selling or swapping is not taxable.

Also Read: Crypto Taxation in India: Risks and Penalties of Evasion

Step 2: Keep Complete Transaction Records

Good record-keeping is very important. Every crypto holder should maintain:

• Exchange trade history (CSV or PDF)

• Wallet addresses and transaction hashes

• Date and time of each transaction

• Purchase price and selling value in INR

• Bank statements showing deposits or withdrawals

If records are missing, tax officers may estimate income, which can increase the tax burden.

Step 3: Calculate Crypto Income Correctly

Crypto income is calculated for each transaction separately.

Formula:

Selling value (in INR) – Cost of acquisition (in INR) = Taxable income

Important points:

• A loss from one crypto cannot reduce a profit from another crypto.

• Crypto losses cannot reduce salary, business income, or interest income.

• Cost of electricity, internet, or platform fees is not allowed as deductions.

Step 4: Understand 1% TDS on Crypto

Under Section 194S, 1% TDS is deducted on crypto transfers above the threshold limit:

• Exchanges deduct and deposit TDS automatically.

• In P2P deals, the buyer may be responsible for TDS.

This 1% TDS is not an extra tax. It can be adjusted against the final amount payable.

In recent years, the government has collected thousands of crores of rupees through crypto TDS, showing strong monitoring of digital asset activity.

Also Read: Top 10 Cryptocurrencies to Sell and Repurchase During Indian Taxation

Step 5: Calculate Total Tax Payable

After calculating total crypto income for the year:

• Apply 30% flat tax.

• Add Health and Education Cess (4%).

• Add a surcharge if the income is considerably high.

Advance tax may be required if the total tax liability is high and the TDS is insufficient.

Step 6: File Income Tax Return with Crypto Details

Crypto income must be reported in the Income Tax Return (ITR) for the relevant assessment year.

While filing:

• Declare total crypto income under the VDA schedule.

• Mention TDS as already deducted.

• Pay the remaining tax or claim a refund if excess TDS was deducted.

Incorrect reporting or non-reporting may lead to notices from the Income Tax Department.

Step 7: Match TDS with Tax Records

Before filing a return, check:

• Form 26AS

• Annual Information Statement (AIS)

These documents show TDS deducted by exchanges or buyers. If TDS is missing or wrongly reported, a correction should be requested early.

Mismatch in TDS is a common reason for tax notices.

Step 8: Be Ready for Scrutiny and Compliance Checks

In recent years, tax authorities have increased scrutiny on crypto investors and traders. Data from exchanges, banks, and blockchain analysis tools is used to identify unmarked income.

Keeping clean records and accurate reporting reduces legal risk and penalties.

Step 9: Use Tools or Professional Help if Needed

Crypto tax calculations can become complex for users who trade frequently or use multiple wallets.

Helpful options include:

• Crypto tax software for report generation.

• Chartered accountants with crypto experience.

• Regular reconciliation every quarter.

This reduces last-minute mistakes and interest charges.

Latest Updates and Outlook

Industry bodies recently again requested a 1% reduction in TDS, stating it affects liquidity and trading volumes. However, no official rollback has been announced yet.

The government continues to use crypto tax data to track digital asset activity and strengthen compliance. Any future changes are expected only through formal budget announcements.

Final Thoughts

Paying cryptocurrency tax in India requires discipline and clarity. Any individual who invests in or trades digital assets must track transactions, adjust TDS, and file returns appropriately.

Failing to file crypto taxes can result in penalties and legal issues. Following a step-by-step process makes compliance more manageable and less stressful, even when the regulation feels extreme.

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FAQs

1. Is cryptocurrency legal and taxable in India in 2026?

Yes, cryptocurrency is legal to hold and trade, and it is fully taxable under the Income Tax Act as a Virtual Digital Asset.

2. How much tax is payable on cryptocurrency profit?

Profit from cryptocurrency transfer is taxed at a flat 30%, plus applicable surcharge and 4% health and education cess.

3. Can crypto losses be adjusted against other income?

No, losses from cryptocurrency cannot be set off against salary, business income, or even other crypto gains.

4. What is 1% TDS on crypto, and who deducts it?

1% TDS is deducted from the transaction value during crypto transfer, usually by exchanges or by the buyer in P2P trades.

5. What happens if cryptocurrency income is not reported?

Non-reporting may trigger notices from the Income Tax Department and can lead to penalties, interest, and further scrutiny.