Cryptocurrency in India: A Guide to Taxation and Compliance in 2025

Cryptocurrency has steadily moved from being a niche investment to a widely adopted digital asset class in India. Although digital currencies are not recognized as legal tender yet, they are not illegal either. This grey zone has often left investors and businesses confused about how to deal with crypto assets. However, over the last few years, the Indian government has taken concrete steps toward regulating the crypto ecosystem—primarily by introducing a clear taxation regime and subjecting certain entities to compliance requirements.

In this article, we aim to provide a comprehensive understanding of the taxation, GST implications, and compliance obligations associated with cryptocurrency transactions in India as of 2025.

The regulatory treatment of cryptocurrency in India has evolved significantly since the Supreme Court’s 2020 judgment in Internet and Mobile Association of India v. RBI, which struck down the Reserve Bank of India’s circular prohibiting banks from facilitating crypto transactions. Post the aforesaid decision, crypto trading resumed in India, and the government began working on a framework to tax and regulate the sector. While India has not yet introduced a formal law regulating cryptocurrencies or classifying them as legal tender, it has defined a category of digital assets called “Virtual Digital Assets” (VDAs) through the Finance Act, 2022.

The term “Virtual Digital Asset” is defined under Section 2(47A) of the Income Tax Act, 1961 and includes cryptocurrencies, non-fungible tokens (NFTs), and any other digital assets notified by the central government. This intentionally broad definition gives the government the flexibility to bring new forms of digital assets under the tax net as they emerge. While this may not yet provide clarity on the legal status of cryptocurrency under RBI or SEBI regulations, it has firmly placed VDAs within the scope of income tax and other compliance laws.

The Finance Act, 2022, introduced a new Section 115BBH, which imposes a flat tax rate of 30% on all income arising from the transfer of VDAs. This rate applies to both long-term and short-term gains, with no distinction made between the two. The law does not allow any deductions or exemptions other than the cost of acquisition, meaning that expenses such as exchange fees, transaction costs, or mining-related expenses cannot be claimed.

Example to Simplify:

Let's say you bought Bitcoin for ₹1,00,000 and sold it for ₹1,50,000.

- Your Profit = ₹50,000

- Taxable Income = ₹50,000 (Cost of acquisition i.e., ₹1,00,000 is deducted)

- Income Tax @ 30% = ₹15,000

- Additionally, TDS at 1% would have been deducted by the buyer at the time of transaction on ₹1,50,000, which is ₹1,500.

So, in this simplified scenario, your net earnings after tax and TDS would be ₹1,50,0,00 - ₹15,000 - ₹1,500 = ₹1,33,500.

Another key provision is the denial of loss adjustment. Losses from the transfer of VDAs cannot be set off against any other income—whether salary, business profits, or capital gains from other assets. Moreover, such losses cannot be carried forward to future years. This restriction makes the tax regime for crypto quite stringent compared to other asset classes like equities or mutual funds. The Finance Act also clarified that if a person receives cryptocurrency as a gift, the value of the crypto would be taxed in the hands of the recipient under the head "Income from Other Sources," unless it is received from a relative or falls within other exempt categories.

Beyond income tax, Goods and Services Tax (GST) laws may also apply to crypto-related activities, depending on the nature of the transaction. Crypto exchanges that provide a platform for buying and selling digital assets are generally considered to be offering a taxable service and are required to pay 18% GST on their commission or platform fees. If mining activity is carried out as a business and crosses the applicable turnover threshold, it may also be treated as a taxable supply of service, attracting 18% GST. In cases where cryptocurrencies are used as a mode of payment to purchase goods or services, such transactions may be treated as barter and taxed based on the fair market value of the goods or services exchanged. Furthermore, when crypto is used to pay for imported services from outside India, such as Web3 development or NFT art, reverse charge GST obligations may arise.

From a compliance perspective, cryptocurrency investors and traders are now expected to report their transactions in their income tax returns. The government has updated ITR forms to include dedicated schedules for reporting income from VDAs. Taxpayers should ensure that the TDS deducted on their cryptocurrency trades is accurately reflected in their Form 26AS and that the disclosed income matches these entries. Failing to report such income correctly may result in tax scrutiny or penalties.

Importantly, cryptocurrency platforms in India have been brought under the purview of the Prevention of Money Laundering Act, 2002 (PMLA). Exchanges and wallet providers are now classified as reporting entities and are obligated to conduct Know Your Customer (KYC) procedures, maintain records of transactions, and report suspicious transactions to the Financial Intelligence Unit (FIU-IND). This aligns Indian practice with global standards set by the Financial Action Task Force (FATF), ensuring a higher level of transparency and reducing the risk of money laundering through digital assets.

For investors involved in international cryptocurrency transactions, the Foreign Exchange Management Act, 1999 (FEMA) could also come into play. The RBI has not yet issued clear regulations on cross-border crypto holdings or transactions, but care must be taken when sending or receiving cryptocurrency across international borders. In such cases, the disclosure of foreign cryptocurrency holdings in Schedule FA of the income tax return is advisable, especially for resident individuals holding assets on foreign platforms.

Cryptocurrency traders with high volumes or frequent transactions may also be classified as running a business under tax law, triggering tax audit requirements under Section 44AB of the Income Tax Act. This would require them to maintain books of accounts, undergo a tax audit, and comply with additional disclosure norms.

In light of these legal and compliance developments, it is essential for crypto users in India to stay informed and adopt best practices. Maintaining detailed records of all transactions—including token names, quantities, dates, values, and wallet addresses—is critical. Investors should use reputable Indian exchanges that comply with KYC and tax reporting norms. Peer-to-peer transactions or the use of foreign platforms without adequate documentation should be avoided. Given the complexity of the tax provisions, seeking advice from qualified tax professionals is strongly recommended.

Looking ahead, India is expected to introduce a comprehensive legislative framework to regulate the crypto ecosystem, which may include licensing norms, investor protection measures, and formal classification of crypto assets under RBI and SEBI regulations. Until then, the current tax and compliance provisions serve as the primary regulatory touchpoints. The Indian government has also shown interest in developing a Central Bank Digital Currency (CBDC), which may coexist with private cryptocurrencies in the financial ecosystem.

In conclusion, while the Indian crypto market is yet to be governed by a unified legal code, the introduction of a tax regime and PMLA coverage signifies the government's intent to regulate and not ban. For crypto investors and businesses, this means the path forward is not without challenges, but it is certainly navigable. By staying informed, complying with tax and legal obligations, and keeping pace with regulatory changes, stakeholders can continue to participate confidently in India’s rapidly evolving crypto economy.

About the author: Ashish Deep Verma is the Founder and Managing Partner of Vidhiśāstras – Advocates & Solicitors.

This article is for informational purposes only and should not be considered legal or financial advice. For specific legal and tax advice related to your crypto transactions, please consult with a qualified legal and tax professional.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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