1. What Is Cryptocurrency Under Indian Tax Law?

Cryptocurrency is a type of digital asset that uses cryptography and blockchain technology to record and secure transactions. Bitcoin, Ethereum, and other crypto tokens are common examples.

Under Indian income-tax law, many cryptocurrencies fall within the category of Virtual Digital Assets (VDAs).

Virtual Digital Assets may include:

• Bitcoin (BTC)

• Ethereum (ETH)

• Other cryptocurrencies and crypto tokens

• Non-Fungible Tokens (NFTs), where covered by the legal definition

• Other notified digital assets

The tax treatment depends on the nature of the digital asset and the transaction. The Income-tax Act, 2025, which became effective on 1 April 2026, continues to provide a special tax treatment for income from the transfer of VDAs.

2. What Is the Tax Rate on Cryptocurrency in India?

Income earned from transferring a Virtual Digital Asset is taxable at a special rate of 30%, in addition to applicable surcharge and cess.

For tax years beginning on or after 1 April 2026, this provision is covered under Section 194, Table Sl. No. 4 of the Income-tax Act, 2025.

For income earned during FY 2025–26, the corresponding provision is Section 115BBH of the Income-tax Act, 1961.

The special rate generally applies regardless of how long the cryptocurrency was held.

Example of Cryptocurrency Tax Calculation

Suppose an investor purchases Bitcoin for ₹2,00,000 and later sells it for ₹3,00,000.

This is an illustrative calculation. Any applicable surcharge and other tax adjustments must be considered separately.

3. Is 1% TDS Applicable on Cryptocurrency Transactions?

Yes. A 1% Tax Deducted at Source (TDS) provision applies to qualifying transfers of Virtual Digital Assets.

For transactions covered by the Income-tax Act, 1961, the provision was Section 194S. Under the Income-tax Act, 2025, the corresponding provision is Section 393(1), Table Sl. No. 8(vi).

TDS is generally deducted from the consideration paid or payable for the transfer, rather than only from the profit earned.

Example of 1% TDS

Suppose you sell cryptocurrency for ₹1,00,000.

The TDS amount is a tax credit, not an additional 1% tax on top of the final tax liability. It can be considered while calculating the taxpayer's overall tax payable, subject to applicable rules and credit appearing in tax records.

Important: Under the earlier Section 194S rules, the annual threshold was ₹50,000 for specified persons and ₹10,000 for other persons. For transactions under the new Act, check the applicable 2026 rules and thresholds before applying these limits.

4. Can Cryptocurrency Losses Be Adjusted Against Other Income?

One of the most important aspects of cryptocurrency taxation in India is the restriction on loss adjustment.

Under the special VDA tax provisions, losses from transferring cryptocurrency generally cannot be:

• Set off against salary income.

• Adjusted against business income.

• Adjusted against other capital gains.

• Set off against gains from another VDA transaction.

• Carried forward to future tax years.

This restriction makes cryptocurrency taxation different from the ordinary treatment of many other investment assets.

Example

Suppose an investor completes two cryptocurrency transactions:

The investor generally cannot reduce the Bitcoin profit by the Ethereum loss under the special VDA rules.

The taxable income from the Bitcoin transfer would therefore remain ₹50,000, subject to the applicable provisions.

5. Is Cryptocurrency-to-Cryptocurrency Exchange Taxable?

Yes. Exchanging one cryptocurrency for another can constitute a transfer of a Virtual Digital Asset.

For example:

• Exchanging Bitcoin for Ethereum.

• Exchanging Ethereum for another crypto token.

• Exchanging one digital token for another through a crypto exchange.

Such transactions may trigger tax even if the investor does not receive Indian rupees in their bank account.

Investors should maintain records of the value of the assets transferred and received, transaction dates, acquisition costs, and exchange statements.

6. Is Cryptocurrency Received as a Gift Taxable in India?

Cryptocurrency received as a gift may have tax implications under the applicable provisions governing gifts of property, including Virtual Digital Assets.

The tax treatment can depend on:

• The value of the cryptocurrency received.

• Whether it was received without consideration or for inadequate consideration.

• The relationship between the donor and recipient.

• Whether a specific statutory exemption applies.

• The circumstances and documentation of the transfer.

Gifts received from specified relatives and certain other exempt categories may receive different treatment. A recipient should not assume that every gifted cryptocurrency transaction is automatically tax-free.

7. Is Income from Cryptocurrency Mining and Staking Taxable?

Cryptocurrency mining and staking are different from ordinary purchases and sales.

Mining involves using computing resources to validate transactions or create new cryptocurrency units. Staking generally involves participating in a blockchain network by locking or delegating digital assets.

The tax treatment may depend on how the income is earned, when the digital assets are received, their valuation, and whether a subsequent transfer takes place.

For example, a person receiving cryptocurrency as a reward may need to examine the tax treatment at the time of receipt as well as the consequences of a later transfer.

Because these activities can involve different facts and legal questions, professional tax advice is recommended before filing the return.

8. How Is Cryptocurrency Reported in Income Tax Returns?

Cryptocurrency investors should disclose taxable VDA transactions in their income tax returns as required by the applicable tax rules and return forms.

For FY 2025–26, the return will be filed under the Income-tax Act, 1961, using the applicable ITR form and reporting requirements.

For Tax Year 2026–27 and subsequent tax years, the Income-tax Act, 2025 and the applicable new return forms and rules will govern reporting.

Depending on the taxpayer's income and activities, the relevant ITR form may differ. Investors should check the latest instructions issued by the Income Tax Department before filing.

Documents Required for Cryptocurrency Tax Filing

Keep the following records ready:

1. PAN details.

2. Bank statements.

3. Cryptocurrency exchange statements.

4. Wallet transaction history.

5. Purchase and sale records.

6. Transaction dates and values.

7. TDS certificates and tax credit details.

8. Records of crypto-to-crypto exchanges.

9. Details of cryptocurrency received as gifts or rewards.

10. Details of overseas exchange accounts and wallets, where relevant.

Maintaining complete records makes it easier to calculate taxable income and respond to tax-related queries.

9. Does the Government Track Cryptocurrency Transactions?

Cryptocurrency transactions can be subject to reporting and information-sharing requirements.

Under Section 509 of the Income-tax Act, 2025, prescribed reporting entities must furnish information about specified crypto-asset transactions to the Income Tax Department in the prescribed form and manner.

This reporting framework is important because transaction information may be available to tax authorities through reporting entities.

Investors should not assume that transactions carried out through cryptocurrency exchanges or digital wallets are automatically outside the tax system.

10. What Happens If You Do Not Pay Cryptocurrency Tax?

Failure to report taxable cryptocurrency income or comply with applicable tax provisions can create financial and legal consequences.

Depending on the circumstances, consequences may include:

• Additional tax liability.

• Interest on unpaid tax.

• Applicable penalties.

• Tax notices or assessment proceedings.

• Further action in cases involving serious non-compliance.

Investors should calculate their income correctly, disclose relevant transactions, and pay applicable taxes within the prescribed timelines.

11. Important Tips for Cryptocurrency Investors in India

If you invest or trade in cryptocurrency, follow these practical steps to manage your tax responsibilities.

Maintain transaction records: Save exchange statements, wallet histories, purchase details, and sale confirmations.

Track every transfer: Crypto-to-crypto exchanges and other transfers may have tax consequences.

Check TDS credits: Verify whether applicable TDS has been deducted and correctly reflected in your tax records.

Calculate gains accurately: Keep acquisition costs and transfer values properly documented.

Report transactions correctly: Use the appropriate ITR form and applicable VDA reporting schedule.

Review overseas transactions: Consider the additional reporting and tax requirements that may apply to foreign accounts or assets.

Consult a tax professional: Seek advice if you have complex transactions, mining income, staking rewards, gifts, or overseas holdings.

12. How First Startup Can Help with Tax Compliance

Cryptocurrency taxation can be complicated, especially when an investor has multiple exchange accounts, frequent trades, overseas wallets, or different types of digital assets.

First Startup provides professional tax and business compliance services to individuals, entrepreneurs, and businesses.

Our services include:

• Income Tax Return (ITR) Filing

• Tax Compliance Assistance

• Accounting and Bookkeeping

• GST Registration and Compliance

• TDS Return Filing

• Company Registration

• LLP Registration

• MSME Registration

• Trademark Registration

• Business Compliance Services

If you need assistance understanding your tax obligations or organising your financial records, connect with our professional team.

Contact First Startup

Website: https://www.firststartup.in/
Phone: +91 63956 22281
Email: [email protected]

Conclusion

Understanding the tax implications of cryptocurrency in India is essential for investors, traders, and individuals dealing in digital assets. Cryptocurrency transfers are subject to a special tax rate of 30%, while qualifying transactions may also attract 1% TDS.

The law also restricts the adjustment and carry-forward of losses from VDA transfers. In addition, investors should maintain transaction records and report their income according to the applicable income-tax provisions.

With proper financial records, accurate tax calculations, and professional guidance, cryptocurrency investors can manage their tax responsibilities more effectively.

Frequently Asked Questions (FAQs)

1. What is the cryptocurrency tax rate in India?

Income from the transfer of Virtual Digital Assets is generally taxed at 30%, plus applicable surcharge and cess, under the special VDA tax provisions.

2. Is Bitcoin taxable in India?

Yes. Bitcoin is generally treated as a Virtual Digital Asset, and income from its transfer is subject to the applicable VDA taxation rules.

3. Is 1% TDS deducted on cryptocurrency transactions?

A 1% TDS provision applies to qualifying VDA transfers. The applicable section and threshold should be checked for the relevant tax year.

4. Can I claim cryptocurrency losses in my income tax return?

Losses from the transfer of VDAs generally cannot be set off against other income or carried forward under the special tax provisions.

5. Is exchanging Bitcoin for Ethereum taxable?

An exchange of one cryptocurrency for another may be treated as a transfer of a VDA and can create a taxable event.

6. Do I have to pay tax if I hold cryptocurrency without selling it?

Merely holding cryptocurrency without transferring it generally does not trigger tax on transfer gains. However, other receipts or transactions may have separate tax implications.

7. Is cryptocurrency received as a gift taxable?

It may be taxable depending on its value, the relationship between the donor and recipient, and applicable exemptions under income-tax law.

8. Do I need to report cryptocurrency in my ITR?

Taxpayers must report taxable VDA transactions and related income in accordance with the applicable ITR form and reporting requirements.

9. Is cryptocurrency mining income taxable in India?

Mining rewards may have tax implications depending on the circumstances of receipt and subsequent transfer. The applicable treatment should be evaluated carefully.

10. Which law governs cryptocurrency taxation in India in 2026?

The Income-tax Act, 2025 came into effect on 1 April 2026. Income earned during FY 2025–26 remains governed by the Income-tax Act, 1961, while Tax Year 2026–27 is governed by the new Act.