Taxation of Cryptocurrency in India: A Complete Guide for Investors and Traders

In the fast growing Indian economy Cryptocurrencies are emerging as one of the  prominent financial innovation, offering decentralized transactions. In India Virtual Digital Assets (VDAs) such as cryptocurrencies, NFTs, etc. are now subject to taxation, whose capital gains are taxable at a flat 30%.

What is a Virtual Digital Asset (VDA)?

Section 2(47A) of the Income Tax Act defines a Virtual Digital Asset (VDA) to include:

• Cryptocurrencies such as Bitcoin, Ethereum, Ripple, etc.

• Non-Fungible Tokens (NFTs)

• Any other digital asset notified by the Central Government

Therefore, most crypto assets traded on exchanges fall within the ambit of VDAs.

The following events typically trigger tax liability under the current cryptocurrency taxation rules in India:

• Selling crypto for fiat (INR).

• Exchanging one cryptocurrency with another.

• Purchasing any goods or services with the help of crypto (spending crypto). That qualifies as a transfer of VDA.

• Cryptocurrency obtained as income, such as through mining, staking, airdrops, or rewards, could be treated as income and must once more be taxed on its disposal.

• Cryptocurrency gifts: when received over exemption limits and not themselves received as a gift, they are taxed and assessed again on sale.

If none of these events happen and the crypto is merely held, tax typically applies only when it is eventually disposed of or transferred.

Tax on Transfer of Cryptocurrency

Flat Tax Rate of 30%

Any income arising from the transfer of cryptocurrencies is taxable at a flat rate of 30%, irrespective of the taxpayer's income slab.

No Deduction of Expenses Allowed

One of the unique features of Section 115BBH is that no deduction is allowed against crypto income except the cost of acquisition.

The following expenses cannot be claimed:

• Internet charges

• Electricity expenses

• Exchange fees (except where considered part of acquisition cost)

• Salary or consultancy expenses

• Administrative expenses

  
  

Only the purchase cost of the crypto asset can be deducted while computing taxable gains.

 

Losses Cannot Be Set Off

Losses arising from cryptocurrency transactions cannot be:

• Set off against any other income

• Set off against gains from another cryptocurrency

• Carried forward to future years

 

TDS on Cryptocurrency Transactions

Section 194S mandates deduction of Tax Deducted at Source (TDS) at 1% on consideration paid for transfer of VDAs.

Threshold Limits

• ₹50,000 in a financial year for specified persons

• ₹10,000 in other cases

The TDS is deducted on the gross transaction value and can be claimed as credit while filing the Income Tax Return.

Taxability of Gifts of Cryptocurrency

Cryptocurrency received as a gift may be taxable under Section 56(2)(x).

 

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

Cryptocurrency taxation in India is governed primarily by Sections 115BBH and 194S of the Income Tax Act. Profits from crypto transactions are taxed at a flat rate of 30%, losses cannot be set off, and a 1% TDS applies on specified transactions. Given the evolving regulatory environment, investors should maintain detailed records and ensure timely compliance with tax laws.

At Rishabh S K Jain & Associates, we assist individuals, traders, and businesses in understanding the tax implications of cryptocurrency transactions, maintaining compliance, and planning their tax affairs efficiently.