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Founder, TWIST POOL Labs · TAC Research · NanoCERN Unit, Pune
First-principles finance educator · 10+ years in Indian capital markets
ORCID: 0009-0003-1953-7932Cryptocurrency in India exists in a legally ambiguous but increasingly regulated space. It is not banned. It is not fully regularised. But it is heavily taxed and under growing RBI & Interest Rates Explained and What is SEBI? scrutiny. Here is the current state of play.…
Cryptocurrency in India exists in a legally ambiguous but increasingly regulated space. It is not banned. It is not fully regularised. But it is heavily taxed and under growing RBI & Interest Rates Explained and What is SEBI? scrutiny. Here is the current state of play.
1. Is Crypto Legal in India?
Yes — with conditions. The Supreme Court overturned RBI’s 2018 banking ban on cryptocurrency in March 2020. Cryptocurrency is not legal tender in India, but trading, buying, and selling cryptocurrencies is legal.
What is banned: No cryptocurrency is designated as legal tender. Crypto payments for goods/services are not legally enforceable in the same way as INR payments.
What is regulated: Crypto exchanges must register with the Financial Intelligence Unit (FIU-IND) and comply with anti-money laundering (AML) and know-your-customer (KYC) norms under the Prevention of Money Laundering Act (PMLA).
Regulated exchanges: Binance, WazirX, CoinDCX, ZebPay, and others must be FIU-registered. Unregistered foreign exchanges are a compliance risk.
2. Tax on Cryptocurrency in India (Finance Act 2022 Rules)
The Finance Act 2022 introduced specific provisions for “Virtual Digital Assets” (VDAs — the official term for cryptocurrencies and NFTs in Indian law).
Key Tax Rules:
30% flat tax on VDA gains:
- All profits from selling, trading, or transferring VDAs are taxed at 30% (plus 4% cess = 31.2% effective rate)
- No LTCG/STCG distinction — holding period does not matter
- No deduction is allowed except the cost of acquisition
- Trading fees, exchange fees, internet costs are NOT deductible
1% TDS on VDA transactions:
- Every time you sell/transfer VDA (crypto) worth above ₹10,000 (₹50,000 for specified persons like traders), the buyer/exchange deducts 1% TDS
- TDS is advance tax — creditable when filing ITR
- TDS on crypto has significantly impacted liquidity on Indian exchanges since July 2022
No set-off of losses:
- Loss from one cryptocurrency cannot be set off against gain from another cryptocurrency
- Crypto losses cannot be set off against any other income (equity gains, salary, business income)
- Crypto losses cannot be carried forward
This is dramatically harsher than equity or debt loss treatment.
3. Reporting Crypto in ITR
Crypto income must be reported under Schedule VDA in ITR (introduced in AY2023-24).
Report:
- Acquisition date and cost
- Sale date and amount
- Net gain (sale price − acquisition cost only)
- 30% tax applicable
Do not wait for TDS certificates to report — declare all transactions regardless of whether TDS was deducted.
Non-compliance risk: The Income Tax Department has been matching crypto exchange data (from FIU-IND reports) against ITR disclosures. Non-disclosure of crypto gains has resulted in notices.
4. The Practical Impact of the Tax Framework
The 30% flat tax + 1% TDS has made frequent crypto trading extremely uneconomical in India.
Example: Buy Bitcoin at ₹30 lakh, sell at ₹33 lakh (10% gain).
- Gain: ₹3,00,000
- Tax: ₹3,00,000 × 30% = ₹90,000 + cess = ₹93,600
- Net after-tax return: 2.1% (not 10%)
Active crypto traders pay 31.2% of every positive trade outcome while being unable to offset any losses. This tax structure is designed to discourage frequent trading — and it has succeeded.
5. What Indian Investors Should Know
- Hold long-term: The 30% rate applies regardless of holding period — but longer holding means fewer taxable events and reduced TDS drag.
- Declare everything: Crypto exchange data is available to the IT Department. Non-disclosure is high-risk.
- Consider global exchanges carefully: Using unregistered foreign exchanges reduces TDS deduction but does not eliminate your tax liability — you must still declare and pay.
- Crypto is NOT a mainstream portfolio component: The tax structure makes it suitable only for investors comfortable with very high risk and willing to pay the heavy tax on gains.
The Smart Friend’s Verdict
Cryptocurrency in India is legal but punitively taxed. The 30% flat rate with no loss offset capability is the government’s way of discouraging retail crypto speculation without banning it outright.
If you hold crypto: declare it fully. If you are considering crypto: understand that after 31.2% tax on every gain (with zero loss relief), the expected after-tax return drops dramatically. For most Indian investors, the risk-adjusted, after-tax case for crypto as a portfolio component does not yet clear the hurdle rate.
Back to US Stocks via LRS for a legal, regulated international investment alternative.
Frequently Asked Questions
This is dramatically harsher than equity or debt loss treatment.
See the full explanation in the section above.
The Finance Act 2022 introduced specific provisions for “Virtual Digital Assets” (VDAs — the official term for cryptocurrencies and NFTs in Indian law).
Crypto income must be reported under Schedule VDA in ITR (introduced in AY2023-24).
The 30% flat tax + 1% TDS has made frequent crypto trading extremely uneconomical in India.