India shocked the crypto world when it slapped a flat 30% tax on virtual digital assets. Two years on, traders are still wrapping their heads around the rules — and the taxman is watching every on-chain move. Here's the no-fluff breakdown of how crypto is actually taxed in India right now.

The 30% Flat Tax: India's Crypto Hammer

When the government announced a 30% flat tax on crypto gains in the 2022 Union Budget, the market tanked overnight. The tax applies to all income from the transfer of Virtual Digital Assets (VDAs) — Bitcoin, Ethereum, stablecoins, NFTs, even obscure altcoins trading on obscure DEXs.

Here's what makes the regime uniquely brutal compared to global peers:

  • No deduction for expenses. Mining costs, gas fees, exchange commissions, transfer fees — none of it counts. Only the cost of acquisition reduces the taxable amount.
  • No loss set-off between VDAs. Your Ethereum loss cannot offset your Bitcoin gain. Each crypto is a separate bucket under Section 115BBH.
  • Carry-forward losses are banned. Unlike stocks, where you can carry forward capital losses for eight years, VDA losses simply vanish if unclaimed in the same assessment year.
  • No rebate or slab benefit. Crypto gains are taxed at a flat 30% plus applicable surcharge and health & education cess — no standard deductions apply.

For active traders, this is punishing. A flat 30% on every profitable trade, with no way to harvest losses intelligently, leaves very little slippage for error.

1% TDS: The Hidden Tax Most Traders Miss

Besides the income tax, India imposed a 1% Tax Deducted at Source (TDS) on every VDA transfer above prescribed thresholds, effective July 1, 2022. Section 194BA made exchanges — and even certain peer-to-peer facilitators — responsible for deducting this TDS.

What TDS Actually Does to Your Capital

The TDS isn't your final tax — it's an advance payment. You can claim it as a refund or adjust it against your total liability when filing ITR. But cash flow suffers badly:

  • Active traders lose 1% of capital to TDS on every buy, sell, and even crypto-to-crypto swap.
  • The deductibility rules make small transactions inefficient and large ones capital-intensive.
  • Refund processing ties up working capital for months after filing.

Worse, mismatched Form 16/26Q data with your actual trades is now one of the most common reasons the Income Tax Department issues notices. Keep every trade receipt, every wallet export, every P2P screenshot — they aren't optional.

What Actually Counts as Crypto in India

The term Virtual Digital Asset is intentionally broad. Under Section 2(47A) of the Income Tax Act, it covers:

  • Cryptocurrencies — Bitcoin, Ethereum, Solana, and everything else.
  • Non-fungible tokens, including digital art and collectibles.
  • Utility tokens, governance tokens, and stablecoins.
  • Any digital representation of value recorded on a distributed ledger.

Notably, gifts of crypto are taxed in the recipient's hands under Section 56(2)(vi) at fair market value. Send a friend ₹60,000 worth of Bitcoin for their birthday? That's taxable income for them, and only a narrow list of exemptions — relatives on inheritance, or aggregate under ₹50,000 — saves it.

How to Stay Compliant Without Losing Your Mind

Compliance isn't optional. Penalties for non-disclosure include a 30% penalty plus interest for under-reporting, and prosecution under the Black Money Act for undeclared foreign crypto holdings. The cost of getting it wrong exceeds the cost of doing it right.

Step-by-Step Filing Checklist

  • Aggregate every transaction. Pull CSV exports from every Indian exchange, then reconcile on-chain wallet activity that bypassed centralized venues.
  • Calculate gains per asset class. FIFO (First-In, First-Out) is the standard method — confirm your platform uses it consistently.
  • Reconcile TDS against AIS/TIS. Match the Annual Information Statement data with your own records before you file, not after.
  • Use ITR-2 or ITR-3. Crypto income doesn't fit in ITR-1 — capital gains need a separate schedule and balance sheet disclosures.
  • Report even zero-tax cases. Skipping disclosure invites scrutiny, even when you owe nothing.

Working with a chartered accountant familiar with VDAs is no longer a luxury — it's a survival strategy for anyone trading meaningful volume. The framework is complex enough that DIY filing carries real downside risk.

Key Takeaways

  • India taxes all VDA gains at a flat 30% with no deductions except acquisition cost.
  • Losses between VDAs cannot be set off, and unabsorbed losses expire in the same assessment year.
  • A 1% TDS applies on most VDA transfers and must be carefully reconciled at filing time.
  • Crypto gifts, NFTs, and even airdrops can trigger taxable events — know the trigger before you transact.
  • Always disclose in ITR-2 or ITR-3, ideally with a CA who understands Virtual Digital Asset rules.