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Cryptocurrency Taxation in India - Guide to Crypto Taxes in India 2026
Cryptocurrency and other Virtual Digital Assets (VDAs) have become increasingly popular among Indian investors. However, many taxpayers are still unsure about how crypto transactions are taxed, reported, and scrutinized by the Income Tax Department.
Under the Income Tax Act, cryptocurrency transactions are subject to a special tax regime that includes a flat 30% tax on gains, 1% TDS on specified transactions, mandatory disclosure in ITR, and restrictions on loss adjustments.
This guide explains everything you need to know about crypto taxation in India for AY 2026-27.
Crypto Tax in India 2026: Quick Summary
| Particulars | Tax Treatment |
|---|---|
| Tax on Crypto Profits | 30% under Section 115BBH |
| TDS on Crypto Transactions | 1% under Section 194S |
| Deductions Allowed | Only Cost of Acquisition |
| Set-Off of Losses | Not Allowed |
| Carry Forward of Losses | Not Allowed |
| ITR Reporting | Mandatory under Schedule VDA |
| Crypto Gifts | Taxable in specified cases |
| Mining Income | Taxable |
| Staking Rewards | Taxable |
| Airdrops | Taxable |
What are Crypto Currencies as per the Income Tax Act?
The term "cryptocurrency" refers to a type of digital asset or currency that can be used to buy goods and services. The term is used because the transactions are highly encrypted, ensuring they are secure. Unlike traditional currencies, which are regulated and controlled by a central body, it is decentralized.
The cryptocurrency market is worth a massive $1.7 trillion. Currently, there are over 1500 cryptocurrencies listed on exchanges, and this figure continues to rise such as Bitcoin, Ethereum, Litecoin, Dogecoin, Ripple, Matic, etc. Crypto and NFTs were categorized as "Virtual Digital Assets", and Section 2(47A) was added to the Income Tax Act to define this term.
Is Crypto Taxed in India?
Yes, cryptocurrency is liable to tax in India. In the 2022 budget, new rules on the taxation of cryptocurrencies were introduced. For the first time, the government officially termed digital assets, including crypto assets, under “Virtual Digital Assets”. These comprise of all the cryptos such as Bitcoin, Ethereum, etc, and other digital assets such as Non-fungible tokens (NFTs).
The following transaction undertaken using crypto-currency fall under the ambit of taxation
- Spending cryptocurrencies to purchase goods or services.
- Exchanging cryptocurrencies for other cryptocurrencies
- Trading cryptocurrency using fiat currency such as ₹(INR)
- Receive cryptocurrency as payment for a service
- Receiving cryptocurrency as a gift
- Mining cryptocurrency
- Drawing a salary in crypto
- Staking crypto and earning stake benefits
- Receiving Airdrops
Flat 30% Tax on Profits:
Since FY 2022-23, a flat 30% tax (plus 4% cess) is levied on crypto gains, irrespective of your income bracket. Profits are taxed equally, with no differentiation between short-term and long-term gains. The new ITR forms now include Schedule - Virtual Digital Assets (VDA) for reporting crypto/NFT related gains. No deductions are allowed except the cost of acquisition. Losses from crypto cannot be set off against any other income.
TDS at 1%:
Section 194S levies a 1% TDS applies to transactions exceeding ₹10,000 (or ₹50,000 in specific cases) in a financial year. This is automatically deducted by the exchange during transactions, eliminating extra paperwork.
Whether you’re a private investor, a trader, or simply receiving crypto as a gift, every transfer and transaction may be taxed. Additionally, crypto gifts, mining, staking rewards, and airdrops are all considered taxable. No deduction is allowed except for the cost of acquisition.
Reporting in ITR
Starting FY 2025-26, crypto gains must be reported in a separate section called Schedule VDA in your Income Tax Return. Exchanges also need to submit detailed reports to tax authorities.
Gifting of Digital Assets
If you have received cryptocurrency or a Virtual Digital Asset as a gift, it will be taxed in the hands of the receiver. Crypto tax is applicable to all investors, both private and commercial, who have transferred digital assets during the year. The tax rate for both short term and long term gains is the same.
No Carry Forward of Losses
Crypto losses cannot be carried forward to future years or adjusted against any income (including crypto income).
Tax Treatment of Income from Crypto Transactions
Under section 14 of the Income Tax Act, 1961, income from VDA can fall into the below heads of income:
| Scenario | Head of Income |
|---|---|
| When VDA is held as an investment | Capital Gains |
| When VDA is traded frequently | Profits and Gains from Business or Profession |
| When VDA is received through gift, airdrop, etc. | Income from Other Sources |
How do I Invest in Cryptocurrency?
You'll need a "wallet" that can store your cryptocurrency to buy cryptocurrencies. In addition, you need to ensure that KYC is successfully done in the account to be eligible to purchase cryptocurrency. In general, you open an account on a cryptocurrency exchange and then verify it, and use real money to purchase cryptocurrencies like Bitcoin or Ethereum.
How is Cryptocurrency Taxed in India?
In India, cryptocurrencies are classified as virtual digital assets (VDAs), and the profit earned from such investments is taxable. Profits from the sale of cryptocurrencies are taxed at a flat rate of 30 per cent. No basic exemption limit or benefit of tax slabs is available. Only the cost of acquisition is allowed as a deduction—no other expenses or losses can be set off or carried forward. The Indian government had clarified its official stance on cryptocurrencies and other VDAs in the 2022 Union Budget. While filing the income tax return, crypto gains must be reported under the VDA schedule. Taxpayers earning crypto income should use ITR-2 if they are salaried or pensioners. Those having business or professional income along with crypto gains should file ITR-3.
- The gains from trading cryptocurrencies are subject to tax at 30% (plus 4% cess) as per section 115BBH.
- Any transfer of crypto assets on or after 1 July 2022 for an amount of Rs.50000 or Rs.10,000 in some cases is subject to a Tax deducted at source (TDS) at 1% under section 194S.
- The transfer of crypto assets during a year by investors, either private or commercial, is subject to crypto tax.
- The tax rate on short-term and long-term gains is the same, and it applies to all types of incomes.
The earnings from trading, selling, or swapping cryptocurrencies are taxed at a flat 30% (plus a 4% surcharge) for both capital gain and business income.
Other than this, a TDS at 1% is also applicable on the sale of crypto assets of transactions exceeding Rs.50,000 (or Rs.10,000 in exceptional cases).
Under section 14 of the Income Tax Act, 1961, income from VDA can fall into the below heads of income:
- Capital gain: When VDA is held as an investment
- Profit and gain from business or profession: When VDA is traded frequently
- Income from other sources: When VDA is exchanged as a gift, air drop, etc.
Cryptocurrency tax calculation is now very easy with Tax2win’s cryptocurrency tax calculator.
How to Calculate Tax on Crypto?
You have to pay a tax of flat 30% on your crypto profits
| Particulars | Amount |
|---|---|
| Sale value | XXX |
| Less: Purchase Price | (XXX) |
| Gain on sale (Taxable figure) | XXX |
Depending on whether you have invested in cryptocurrency, or trading in crypto as a business activity, it will be taxed as a capital gain or business income accordingly.
TDS on Crypto Transactions
TDS on cryptocurrencies was introduced to tax the crypto traders and investors as soon as they carry out the transaction by deducting the TDS at 1% at the source. The buyer is responsible for deducting TDS @1% from the amount before remitting it to the seller. While Indian exchanges automatically deduct TDS, people trading on foreign exchanges must manually deduct TDS and file their ITR.
In the case of P2P transactions, the buyer will deduct TDS and file form 26QE or 26Q, whichever is applicable.
TDS at 1% is applicable to both buyer and seller in the case of crypto-to-crypto transactions.
The following table presents the TDS compliances related to crypto transactions:
| Type of Transaction | Person Liable to Deduct TDS | Rate | Other Information | Example |
|---|---|---|---|---|
| Buying with INR | The buyer | 1% | Buyer cuts 1% before paying the seller, and sends that 1% to the government. | Buying Bitcoin using rupees directly. |
| Through Indian Exchange | The exchange itself | 1% | TDS is deducted automatically - seller gets the remaining amount. | Platforms like CoinDCX or WazirX. |
| Through Foreign Exchange | The buyer | 1% | Buyer must manually deduct and file TDS. It’s not handled by the platform. | Buying on Binance, Coinbase, etc. |
| P2P Transfers | The buyer | 1% | Buyer files Form 26QE (if individual) or 26Q (if not). Needs manual effort. | Buying crypto peer-to-peer using INR. |
| Crypto for Crypto | Both buyer and seller | 1% each | Both have to deduct 1% and take care of their own TDS filings. | Buying ETH using USDT or other stablecoins. |
Note:- Anyone who sold crypto, received it as payment or had other digital asset transactions needs to accurately report it on their tax return.
Tax on Mining Cryptocurrency
Mining income in cryptocurrency is subjected to taxation at a flat rate of 30% based on the fair market value of the cryptocurrency at the time of mining. However, it's important to note that there is no provision for deductions related to mining expenses, such as electricity or hardware costs. The taxation process for mining income involves a straightforward application of the 30% rate on the cryptocurrency's fair market value during the mining period.
When it comes to selling mined cryptocurrency, capital gains tax is applicable on any profit realized from the sale, swap, or expenditure of the mined digital assets. It's essential to recognize that the cost basis for calculating capital gains is considered zero. This implies that there is no allowance for deducting mining expenses to reduce the taxable gain associated with the sale or disposal of the mined cryptocurrency. The taxation of the proceeds from selling mined cryptocurrency follows capital gains tax rules but with the distinctive feature of a zero-cost basis for these mined assets.
Tax on Airdrops
An airdrop is a method of distributing cryptocurrency tokens directly to specific wallet addresses, which is mostly for free. It is commonly used to create awareness and boost liquidity in the early stages of a new cryptocurrency. However, airdrops are taxable at 30% under the Income Tax Act and fall under the category of Income from Other Sources.
Tax on Crypto Staking/Forging
Cryptocurrency forging means generating new blocks in the blockchain using the Proof-of-Stake algorithm in exchange for rewards in the form of newly generated cryptocurrencies and commission fees. If you stake cryptocurrency, you may have to pay taxes on your earnings. This income you earn from staking will be taxed at 30%. Additionally, when you sell your crypto asset, you will be liable to pay 30% Capital Gains Tax.
Tax on Crypto Gifts
In Budget 2022, virtual digital assets were included within the scope of movable properties. Hence, the crypto gifts received taxed as ‘income from other sources’ at regular slab rates if the total value of gifts is more than Rs 50,000. Similarly, if relatives receive crypto as a gift, it will be tax-exempt.
Tax on Mining Cryptocurrency
Mining income in cryptocurrency is subjected to taxation at a flat rate of 30% based on the fair market value of the cryptocurrency at the time of mining. However, it's important to note that there is no provision for deductions related to mining expenses, such as electricity or hardware costs. The taxation process for mining income involves a straightforward application of the 30% rate on the cryptocurrency's fair market value during the mining period.
When it comes to selling mined cryptocurrency, capital gains tax is applicable on any profit realized from the sale, swap, or expenditure of the mined digital assets. It's essential to recognize that the cost basis for calculating capital gains is considered zero. This implies that there is no allowance for deducting mining expenses to reduce the taxable gain associated with the sale or disposal of the mined cryptocurrency. The taxation of the proceeds from selling mined cryptocurrency follows capital gains tax rules but with the distinctive feature of a zero-cost basis for these mined assets.
Tax on Airdrops
An airdrop is a method of distributing cryptocurrency tokens directly to specific wallet addresses, which is mostly for free. It is commonly used to create awareness and boost liquidity in the early stages of a new cryptocurrency. However, airdrops are taxable at 30% under the Income Tax Act and fall under the category of Income from Other Sources.
Tax on Crypto Staking/Forging
Cryptocurrency forging means generating new blocks in the blockchain using the Proof-of-Stake algorithm in exchange for rewards in the form of newly generated cryptocurrencies and commission fees. If you stake cryptocurrency, you may have to pay taxes on your earnings. This income you earn from staking will be taxed at 30%. Additionally, when you sell your crypto asset, you will be liable to pay 30% Capital Gains Tax.
Tax on Crypto Gifts
In Budget 2022, virtual digital assets were included within the scope of movable properties. Hence, the crypto gifts received taxed as ‘income from other sources’ at regular slab rates if the total value of gifts is more than Rs 50,000. Similarly, if relatives receive crypto as a gift, it will be tax-exempt.
Restrictions on Loss Set-Off for VDA Transactions under the Income Tax Act
The Income Tax Act explicitly prohibits the set off of losses incurred from the transfers of Virtual Digital Assets (VDAs) against income or gains derived from other VDAs. For instance, if an individual sells a cryptocurrency and experiences a loss, this loss cannot be set off against a gain made from the transfer of another VDA. To illustrate, if Chirag sells Bitcoin at a loss of ₹15,000 and subsequently sells units of another cryptocurrency, making a profit of ₹40,000, A would be taxed on the entire profit of ₹40,000 from the sale of the other cryptocurrency. Unfortunately, Chirag would not be allowed to set off the loss of ₹15,000 incurred on the Bitcoin against this profit.
Basically, the Income Tax Act treats gains and income from Virtual Digital Assets as taxable. However, no relief or provision is provided in the event of losses incurred. As a result, Virtual Digital Assets are subject to different taxation rules than most other assets in India, emphasizing the distinct treatment of these assets under the Income Tax Act.
What Is Cryptocurrency F&O Trading?
Crypto Futures and Options are derivative contracts whose value is linked to cryptocurrencies such as Bitcoin, Ethereum, Solana, or XRP.
Unlike spot trading, traders do not necessarily buy or own the underlying cryptocurrency.
Instead, they speculate on price movements through derivative contracts
Crypto Futures
A futures contract allows a trader to agree to buy or sell a cryptocurrency at a predetermined price on a future date.
Crypto Options
Options provide the right, but not the obligation, to buy or sell a cryptocurrency at a specified price within a defined period.
Are Crypto Futures & Options Covered Under the 30% Crypto Tax?
Generally, tax experts believe that crypto F&O contracts are not the same as Virtual Digital Assets.
The 30% tax under Section 115BBH applies to income arising from the transfer of a VDA.
Since derivative contracts do not involve an actual transfer of cryptocurrency in many cases, many professionals view crypto F&O gains as business income rather than VDA income.
As a result:
- Tax may be payable at your applicable slab rate
- The special 30% VDA tax may not apply
- The 1% TDS provisions may not apply
However, taxpayers should note that there is currently no detailed CBDT circular specifically addressing every type of crypto derivative transaction. Therefore, documentation and professional advice remain important.
How Are Crypto F&O Gains Taxed?
Most tax practitioners currently treat crypto F&O gains similarly to traditional derivative trading income.
This means gains are generally reported as:
Non-Speculative Business Income
Income is taxable under:
Profits and Gains from Business or Profession (PGBP)
The tax rate depends on the taxpayer's slab rate rather than a flat 30% rate.
Example
Crypto F&O Profit: ₹5,00,000
Salary Income: ₹10,00,000
Total Taxable Income: ₹15,00,000
The F&O profit is typically added to total income and taxed according to applicable slab rates.
Does 1% TDS Apply to Crypto F&O?
In most commonly discussed interpretations, 1% TDS under Section 194S does not apply to crypto derivative contracts because the transaction does not involve a transfer of a Virtual Digital Asset itself.
This differs significantly from spot crypto transactions, where TDS provisions generally apply.
What About USDT-Settled Contracts?
This is where things become more complex.
Many international exchanges settle derivative profits in USDT rather than Indian Rupees.
Some tax experts argue that if settlement ultimately results in receiving a Virtual Digital Asset, the transaction may attract a different tax interpretation. The settlement mechanism may therefore play a crucial role in determining tax treatment.
Taxpayers dealing with USDT-settled contracts should maintain detailed records and seek professional advice.
Can Crypto F&O Losses Be Set Off?
One of the biggest advantages of the business-income approach is the treatment of losses.
Unlike spot crypto losses, which cannot be adjusted against other income, crypto F&O losses are generally treated as business losses.
Losses May Be Set Off Against:
- Business Income
- Capital Gains
- House Property Income
Losses Cannot Be Set Off Against:
Salary Income
Unabsorbed losses may generally be carried forward subject to applicable business loss provisions.
Example
Crypto F&O Loss = ₹2,00,000
Capital Gain = ₹3,00,000
Net Taxable Income = ₹1,00,000
This flexibility is significantly different from the restrictive VDA tax regime.
Which ITR Form Should Crypto F&O Traders File?
Since crypto derivative income is generally treated as business income, taxpayers typically need to file:
ITR-3
Suitable for:
- Active crypto F&O traders
- Individuals reporting business income
- Professional traders
In some cases, eligible taxpayers opting for presumptive taxation may explore ITR-4, subject to applicable conditions.
Documents Required for Crypto F&O Tax Filing
Maintain:
- Exchange statements
- Trade history reports
- P&L statements
- Contract notes
- Wallet transaction records
- Bank statements
- Funding and withdrawal records
Tax authorities may seek supporting documentation if discrepancies arise.
Common Mistakes Crypto F&O Traders Make
- Assuming all crypto gains are taxed at 30%
- Not reporting derivative income in ITR
- Ignoring foreign exchange transactions
- Failing to maintain trading records
- Incorrectly filing under Schedule VDA
- Missing business income disclosures
How to Report Crypto Income in ITR
Crypto transactions must be reported in Schedule VDA while filing Income Tax Returns.
Depending on the taxpayer's profile:
ITR-2
Suitable for:
- Salaried individuals
- Pensioners
- Investors with crypto gains
ITR-3
Suitable for:
- Traders
- Business owners
- Professionals reporting crypto as business income
Failure to disclose crypto transactions may result in notices, reassessment proceedings, interest, or penalties.
Penalties for Non-Compliance
- Section 271C: If you fail to deduct the required TDS, you may face a penalty equal to the TDS amount that was due.
- Section 276B: If you deduct the TDS but fail to deposit it with the government, you could face severe penalties, including imprisonment for 3 months to 7 years, along with a fine.
New Penalties for Avoiding TDS:
The Indian government has implemented stringent measures to enforce TDS compliance. Non-compliance could result in not only a 100% penalty on the TDS amount but also potential imprisonment for up to 7 years, depending on the severity of the violation.
Frequently Asked Questions
Q- Are NFT (Non-fungible tokens) and cryptocurrency the same?
NFTs, or non-fungible tokens, are cryptographic assets on the blockchain that include unique identification codes and metadata that identify them from one another.
Q- Are cryptocurrencies a good investment?
Cryptocurrencies may appreciate in value, but many investors regard them as speculative investments rather than long-term investments. It should be noted that a currency needs stability.
Q- Is Cryptocurrency legal in India?
Currently, there is no regulation or any kind of ban on cryptocurrencies in India. After the 2022 budget, it can be said that virtual assets like cryptos will not be banned in India but will be treated as another asset class. However, it is not yet clear, and the recognition of digital assets under income tax is not akin to granting legal status.
Q- Will I be taxed if I give someone a Bitcoin?
No, according to the Finance Minister, only the individual who receives cryptocurrency would be taxed. Section 194S of the Income Tax Act was added to bring such transactions into the reporting system. A rate of withholding of one percent has been recommended. Such provisions took effect on July 1, 2022.
Q- Are Exemptions Available for Cryptocurrencies Transaction Profit?
No deductions are allowed except for the cost of acquiring digital assets. This means that a taxpayer cannot claim deductions and exemptions on the profit earned from the purchase and sale of cryptocurrencies.
Q- Has there been any change in Budget 2024 on the TDS and tax rate on crypto F&O transactions?
No, the tax treatment for crypto futures and options has not been changed. Crypto transactions continue to attract TDS at @1% a and the crypto gains will still be taxed at a flat 30%. While the Budget 2024 introduced changes to the STT rates for F&O transactions in securities, these changes do not apply to crypto transactions, as crypto transactions are categorized as commodities.
Q- What does the law say about TDS deduction from crypto VDA transactions?
Section 2(47A) of the IT Act covers all crypto assets like cryptocurrencies, NFTs, and tokens.
- Tax on Gains: Under Section 115BBH, a 30% tax is applicable on gains from trading cryptocurrencies. This applies to private investors, professional traders, and anyone involved in digital asset transactions.
- TDS on Transactions: As per section 194S, a 1% TDS is applicable on cryptocurrency transactions to ensure all transactions are recorded. In the case of P2P transactions, the buyer will deduct TDS and file form 26QE or 26Q, whichever is applicable.TDS at 1% is applicable to both buyer and seller in the case of crypto-to-crypto transactions.
Q- Is TDS deducted from crypto futures and options (F&O) transactions done in Indian and foreign exchanges?
TDS is applicable to crypto futures and options transactions conducted on both Indian and foreign exchanges under specific conditions. Here’s a detailed breakdown:
TDS on Crypto F&O Transactions on Indian Exchanges
Applicability: Section 194S requires the deduction of 1% TDS on the transfer of Virtual Digital Assets, including cryptocurrencies and crypto derivatives such as futures and options.
Thresholds:
- ₹50,000: Applicable to specified persons such as individuals or Hindu Undivided Families (HUFs) whose accounts need to be audited under the Income Tax Act.
- ₹10,000: Applicable to other individuals who do not fall under the category of specified persons.
Q- Is TDS deducted from crypto F&O perpetual contract transactions done in Indian and foreign exchanges?
The Union Budget 2022 mandated a 1% TDS on transfers of Virtual Digital Assets (VDAs), such as cryptocurrencies and perpetual contracts, starting July 1, 2022.
For specified individuals or HUFs who are required to audit their accounts under the Income Tax Act, TDS applies if their VDA transactions exceed ₹50,000 in a financial year. For others, the threshold is ₹10,000.
Q- Is crypto F&O, crypto F&O perpetual contract transactions both taxed at flat 30% rate plus cess?
- Trading Gains/Losses: Profits from trading crypto F&O perpetual contracts are usually classified as speculative business income.
- Capital Gains: Depending on the nature and frequency of transactions, some may be treated as capital gains. However, most active traders will have their gains considered as business income.
- Tax Rates -
Business Income: Income from trading is added to your total income and taxed according to your applicable income tax slab rate.
Capital Gains: If considered capital gains, the tax rate varies based on whether the gains are short-term or long-term. Crypto assets held for less than 36 months are typically seen as short-term and taxed at the individual’s slab rate. Long-term gains may attract a lower tax rate.
