India didn't ban crypto. It did something arguably worse — it taxed it into submission. Since the 2022 Union Budget, virtual digital assets (VDAs) like Bitcoin, Ethereum, and even NFTs have been dragged into one of the harshest crypto tax regimes in the world. A flat 30% capital gains tax plus a 1% TDS on every transaction has reshaped how Indian investors trade, hold, and even think about digital assets. If you're holding, trading, or even receiving crypto as a gift, here's what the taxman expects from you.

The 30% Flat Tax on All Crypto Gains

Forget the long-term vs short-term distinction. Under Section 115BBH of the Income Tax Act, any income from the transfer of virtual digital assets is taxed at a flat 30%, regardless of how long you held the asset. Bought Bitcoin last week and sold it for a profit? 30%. Held Ethereum for three years and cashed out? Still 30%.

There are no indexation benefits, no slab-rate advantages, and no way to escape the rate. The tax is calculated on the difference between the sale price and the cost of acquisition — and that's it. Even the cost of transferring crypto off an exchange, or paying gas fees on-chain, generally cannot be deducted from your gains.

What Counts as a "Transfer"?

  • Selling crypto for INR on an Indian exchange
  • Swapping one crypto for another (e.g., BTC to ETH)
  • Using crypto to pay for goods or services
  • Gifting crypto (treated as income for the recipient in most cases)

The definition is broad. Almost any movement of value is treated as a taxable event, which is why even experienced traders have been caught off guard.

1% TDS: The Rule That Changed Everything

On top of the 30% tax, Section 194S introduced a 1% Tax Deducted at Source on every crypto transaction above a small threshold. The threshold has been revised over time, but the rule is simple — for every rupee you receive from transferring VDAs, 1% goes straight to the government before it even hits your wallet.

For traders using P2P platforms, offshore exchanges, or even DEXs, this TDS is collected by the buyer or the exchange facilitating the trade. Indian exchanges typically deduct it automatically. The deducted amount is reflected in your Form 26AS, and you can claim it as a credit when filing your ITR.

"The 1% TDS isn't a tax — it's a tracking mechanism. The government wants to know every rupee moving through crypto rails."

This single rule has arguably done more to shrink India's crypto trading volumes than any direct ban. High-frequency strategies, scalping, and arbitrage between exchanges have become uneconomical once you factor in the friction.

No Loss Set-Offs, Limited Deductions

Here's the part that really stings. Crypto losses cannot be set off against any other income — not salary, not business income, not capital gains from stocks. You can, however, set off a loss from one VDA against gains from another VDA within the same financial year.

And the deductions? Almost none. Section 115BBH explicitly bars any expenditure or allowance from being deducted except the cost of acquisition. So if you paid a 1% transaction fee on a P2P trade, you generally cannot claim it as an expense against your gains.

Gifts, Airdrops, and Mining

  • Crypto gifts are taxed as "income from other sources" in the hands of the recipient if the value exceeds ₹50,000 in a year.
  • Airdrops and staking rewards are treated as income at the time of receipt, taxed at your slab rate.
  • Mining income is generally treated as business income if done professionally, or as other income for casual miners.

The regime is unforgiving, and the rules around non-transfer income are still evolving through CBDT clarifications.

How to Report Crypto in Your ITR

Reporting crypto gains is mandatory if your total VDA income exceeds the basic exemption limit, but even small amounts should be declared to keep your record clean. Income from VDAs must be reported under "Income from Other Sources" using the special rate of 30% in Schedule VDA of the ITR form.

You'll need to keep a clear record of:

  • Date of acquisition and cost basis for every asset
  • Date of transfer and sale value (in INR)
  • TDS certificates (Form 16A) from exchanges
  • Wallet addresses and transaction hashes, if trading on-chain

For frequent traders, the cost of a CA just went up. Most accountants now charge a premium for VDA filings because of the audit trail and reconciliation work involved. But skipping it is riskier — the Income Tax Department has been sending notices and using AI-driven matching to flag mismatches between TDS data and declared income.

Key Takeaways

  • India taxes all crypto gains at a flat 30% with no long-term benefit.
  • A 1% TDS applies on transfers of VDAs above the prescribed threshold.
  • Losses from VDAs can only be set off against other VDA gains, not regular income.
  • Gifts, airdrops, and staking rewards are taxable events with their own rules.
  • Reporting crypto in ITR under Schedule VDA is mandatory and increasingly enforced.

The bottom line? India's crypto tax framework isn't going anywhere soon. Whether it stays this harsh or gets a softer touch in upcoming budgets, the tracking infrastructure (read: 1% TDS) is here to stay. Stay compliant, keep clean records, and talk to a CA who actually understands VDAs — not one who Googles it the night before your filing deadline.