Crypto Tax, Laws & Regulation in India for 2025

How Crypto Is Taxed in India

30% flat tax on gains (short-term & long-term treated equally)

Under section 115BBH from the 2022 budget, a 30% tax, along with 4% cess and applicable surcharge, is levied on profits made from trading cryptocurrencies from 1 April 2022 onwards. The tax rate is equivalent to the highest income tax bracket in India and applies irrespective of whether the income comes from business activities or investments. Both short-term and long-term gains are treated equally under this section.

1% TDS deduction on transactions

1% TDS deduction is charged on crypto asset transfers under section 194S if the value of the transaction exceeds ₹50,000 in the current financial year. This rate is used by the government to properly tax all cryptocurrency transactions.

GST on trading fees and services

In India, GST or the goods and services tax applies to fees like trading fees, withdrawal fees, if levied, conversion charges like crypto-to-crypto swaps, and service fees on copy trading or future trading. However, GST may not apply to the cryptocurrency purchase value itself or to any transfers made to self-wallets without any service charges.

Tax on gifts, salary, and payments made in crypto

In India, receiving a gift, salary, or payment in cryptocurrency usually incurs a tax liability with certain exceptions. Gifts in crypto of over Rs. 50,000 value in a financial year will be taxed at an applicable Income Tax slab rate, whereas any crypto gifts under Rs. 50,000 or gifts from close family members are completely tax-free.

Income or salary earned from cryptocurrencies is also taxed at 30% at the end of every financial year. There is no deduction, except for the cost of acquisition, allowed while reporting income from a digital asset transfer.

Different Types of Transactions & Their Taxation

Buying and selling crypto

Under Indian law, cryptocurrencies are subject to certain tax rules, depending on the type of transaction being made. No income tax is charged on crypto purchases, but 1% TDS is applicable on the transfer value. The TDS can be later claimed as a credit while filing the ITR. For sales, a 30% tax is imposed on the profits made from selling, along with a 4% cess and applicable surcharge. If a loss is incurred on cryptocurrency transactions, one cannot set off the loss against other income, including capital gains from any other virtual digital currency.

P2P trading and exchange transactions

A Peer-to-Peer (P2P) transaction in the crypto world involves a direct exchange of virtual currencies between two users without any central intermediary, such as a traditional exchange. The trades take place on P2P platforms where buyers and sellers are matched, and typically, using an escrow system, funds are held during the transaction. For any P2P transactions, international exchanges, or trades, buyers are responsible for deducting a 1% TDS and depositing it with the government using Form 26Q or Form 26QE, and remitting the remaining amount to the seller.

Crypto-to-crypto swaps

Crypto-to-crypto exchanges or crypto swaps are treated the same way as crypto sales for Fiat currencies, both requiring reporting and payment. However, the tax payment condition assumes that crypto swaps lead to capital gains, and therefore, the regulations are different if swapping results in a crypto loss.

Losses from crypto swaps need to be reported on taxes, but there is no income for the government to tax. The important benefit of crypto swap losses is that one can write off the capital loss on their taxes. As a result, one can dispose of their original crypto for their losses to be realised.

Mining income tax

Income from mining cryptocurrencies is taxed at an individual income tax slab rate upon receipt. It is not a flat rate but a two-part process that involves capital gains tax and income tax. When an individual receives newly minted cryptocurrency from mining, the FMV or the fair market value on that particular day is considered taxable income. When the same individual later decides to spend, swap, or sell the mined cryptocurrency, capital gained from that activity is taxed at a flat rate of 30%.

Staking, DeFi lending, and yield farming rewards

For IRS tax purposes, any cryptocurrency rewarded by earning through staking, DeFi lending, or yield farming is considered income and accordingly will be taxed at income tax rates. Depending on the FMV, the amount of income received can be determined. For DeFi lending and borrowing, which takes place in a trustless, peer-to-peer manner, there are different tax applications for borrowers and lenders.

Borrowing a crypto loan is not taxable, but selling borrowed assets is a taxable event. Yield farming also involves similar processes as staking and providing liquidity, and therefore, the tax implication is also the same, where users pay their income tax on staking and yield farming rewards.

Airdrops and bonus distributions

Airdrops in crypto are taxed at a 30% flat rate on the FMV of the tokens at the time of credit. As the cost of acquisition for the airdropped tokens becomes zero, the overall airdrop amount becomes taxable.

Crypto Regulation India Timeline – 2025

2018: The Reserve Bank of India (RBI) banned banks from servicing crypto exchanges.

2020: The RBI ban was lifted by the Supreme Court in the IAMAI vs. RBI case.

2021: Introduction of a proposal for a 30% tax on crypto profits.

2022: Section 115BBH and 1% TDS framework introduced.

2023: All exchanges must now register with FIU-IND.

2024: The Government was ordered by the Supreme Court to make a law to prevent abuse.

2025: The pilot of the Digital Rupee (CBDC) scaled, and offshore exchanges were again permitted back after compliance.

Common mistakes to avoid while filing crypto tax

Filing crypto taxes requires careful attention to avoid the key mistakes, which can lead to audits and penalties. For instance,

• Failing to report crypto transactions can lead to steep fines and notices.
• Mischaracterizing crypto activities can lead to an incorrect tax filing.
• Taxpayers can make errors while calculating cost basis and ignore fees like transaction fees.
• Taxpayers can also experience severe penalties under various acts, like the Black Money Act, if they fail to report foreign assets.
• In India, attempting to offset crypto losses against crypto gains is also a big mistake, as the current tax policies prohibit it entirely.

Future Outlook – What’s Next for Crypto Regulation in India?

Several advancements are expected to clarify, mitigate risks, and mainstream consumer protection in the near future.

• The new Crypto Regulation Bill, which has already been introduced, will define the asset classes and licensing framework.
• The token classification framework will distinguish utility, security, and payment tokens.
• Sandbox programs of SEBI and RBI for NFTs, DeFi, and smart contracts will be introduced.
• Decentralised exchanges may also be regulated by the FIU.
• A more comprehensive rollout of the Digital Rupee with wallets and UPI is expected to take place in the near future.