💡 Key Takeaway
India has specific cryptocurrency taxation rules under current income tax provisions, making it crucial for crypto investors to understand their tax obligations.
Cryptocurrency Taxation in India 2025
The crypto tax India 2025 framework provides a comprehensive approach to cryptocurrency taxation. India's current income tax provisions for digital assets create clear guidelines for VDA tax (Virtual Digital Asset tax) compliance, ensuring crypto investors and traders understand their obligations under the new tax regime.
Historical Context
Before 2022, cryptocurrency taxation in India existed in a legal gray area. The Reserve Bank of India (RBI) had imposed banking restrictions on crypto exchanges, but there were no specific tax provisions for digital assets.
- 2018: RBI imposed banking restrictions on crypto businesses
- 2020: Supreme Court lifted the banking ban
- 2021: Growing crypto adoption but unclear tax treatment
- 2022: Introduction of specific crypto tax provisions
Key Tax Provisions Introduced
Current Tax Framework for Virtual Digital Assets
The Income Tax Act 2025 includes specific provisions for Virtual Digital Assets (VDAs) under Section 194(1) Table S. No. 4, which governs the taxation of income from transfer of virtual digital assets.
Section 194(1) - Table S. No. 4
"Any income from the transfer of any virtual digital asset" is subject to special taxation rules with specific restrictions.
Tax Rate
30%
Flat rate on crypto transfer income
Applies To
Any Person
All individuals and entities
What Constitutes Virtual Digital Assets?
According to the Income Tax Act, Virtual Digital Assets include:
- Cryptocurrencies like Bitcoin, Ethereum, and altcoins
- Non-Fungible Tokens (NFTs)
- Any other digital asset as notified by the government
Important Restrictions
⚠️ Important Restrictions under Section 194(1)
❌ No Deductions Allowed
No deduction in respect of any expenditure (other than cost of acquisition, if any) or allowance shall be allowed.
❌ No Loss Set-off
No set off of loss from transfer of virtual digital assets shall be allowed against any other income.
❌ No Carry Forward
Such losses shall not be allowed to be carried forward to succeeding tax years.
✅ Only Allowed
Only the cost of acquisition (if any) can be deducted from the transfer income.
📊 Practical Examples: How Restrictions Work
Bitcoin Transaction
❌ Cannot be used to:
- • Reduce salary/business income
- • Carry forward to next year
- • Claim trading fee deduction
Ethereum Transaction
✅ Only cost of acquisition (₹2,00,000) allowed as deduction
💡 Key Insight
Even though the Bitcoin loss is ₹2,00,000 and Ethereum gain is ₹1,50,000, you cannot set them off. You must pay ₹45,000 tax on Ethereum gain while the Bitcoin loss provides no tax benefit.
📝 Important Note on Cost of Acquisition:
There's debate whether exchange fees when buying crypto can be included in cost of acquisition. Most tax experts recommend the conservative approach: only include the actual purchase price, not exchange fees, to avoid potential tax disputes.
Frequently Asked Questions
What is the crypto tax rate in India 2025?
India applies a flat 30% tax rate on gains from cryptocurrency transactions, with no indexation benefit or loss set-off allowed.
Is there TDS on crypto transactions in India?
Yes, there is 1% TDS on crypto transactions above certain thresholds - ₹50,000 for individuals with small businesses and ₹10,000 for companies and large businesses.
Which ITR form to use for crypto income?
Use ITR-2 if you have salary plus crypto gains, or ITR-3 if you have crypto trading as business income. ITR-1 cannot be used for crypto income.
Can crypto losses be adjusted against other income?
No, losses from crypto transactions cannot be set off against any other income or carried forward to future years.
📚 Next Chapter Preview
In the next chapter, we'll dive deep into how the 30% tax rate is calculated and applied to different types of crypto transactions.