India Crypto Tax Framework in 2025 With Key Updates and Compliance Requirements

India’s approach to cryptocurrency taxation remains cautious yet firm, balancing the need to regulate a growing asset class with efforts to curb tax evasion. As of May 2025, the taxation of Virtual Digital Assets (VDAs), including cryptocurrencies like Bitcoin and Ethereum, continues to be governed by the Finance Act, 2022. The Union Budget 2025, presented in February, introduced measures to broaden the scope of VDAs and tighten compliance, notably by classifying unreported crypto gains as undisclosed income. This article explores the latest crypto tax rules, their implications for investors, and the steps needed to stay compliant in 2025.

Tax Rates and Deductions

Under Section 115BBH of the Income Tax Act, income from the transfer of VDAs is taxed at a flat 30%, plus applicable surcharge and a 4% cess. This rate applies uniformly, regardless of whether the gains are short-term or long-term, a policy that has drawn criticism from investors hoping for lower rates on long-term holdings. When calculating taxable gains, only the cost of acquisition (the price paid to buy the crypto) can be deducted. Other expenses, such as transaction fees or gas costs, are not deductible, which increases the tax burden for active traders.

For example, if you buy 1 Bitcoin for ₹30 lakh and sell it for ₹40 lakh, the taxable income is ₹10 lakh, taxed at 30% (plus cess and surcharge), resulting in a tax liability of approximately ₹3.12 lakh.

Tax Deducted at Source (TDS)

Introduced on July 1, 2022, a 1% Tax Deducted at Source (TDS) is levied on the sale consideration of VDAs under Section 194S. The thresholds are:

• Salaried individuals: TDS applies if transactions exceed ₹10,000 in a financial year.

• Business owners or traders: TDS applies if transactions exceed ₹50,000 annually.

The buyer is responsible for deducting and remitting the TDS to the government. For transactions on Indian crypto exchanges, the exchange automatically deducts the 1% TDS. However, for peer-to-peer (P2P) trades or transactions on foreign exchanges, the buyer must manually deduct and file the TDS using Form 26QE or 26Q. This requirement has added complexity for investors using international platforms.

The Union Budget 2025 expanded the definition of VDAs to include “any crypto-asset that is a digital representation of value, secured by cryptography and utilizing distributed ledger technology or similar mechanisms.” This broader definition, effective from February 1, 2025, ensures that emerging digital assets, beyond traditional cryptocurrencies, fall under the tax net. The move reflects the government’s intent to keep pace with the evolving crypto landscape.

A significant change in Budget 2025 is the inclusion of VDAs in the definition of “undisclosed income” under Section 158B. From February 1, 2025, any unreported crypto holdings or gains discovered during tax searches will be taxed at 60%, plus surcharge and cess, without deductions or exemptions. This provision, pending enactment of the Finance Bill, aims to deter tax evasion and enhance transparency. The high tax rate has sparked concerns among crypto investors, who fear increased scrutiny from tax authorities.

Reporting and Compliance

Crypto income must be reported in the “Schedule VDA” section of Income Tax Return (ITR) forms:

• ITR-2: For reporting crypto gains as capital gains, typically for investors.

• ITR-3: For reporting crypto income as business income, common for traders.

The Schedule VDA requires detailed information, including the date of acquisition, date of transfer, cost of acquisition, and consideration received. For the financial year 2024-25 (assessment year 2025-26), key filing deadlines are:

• Non-audited taxpayers: July 31, 2025.

• Audited taxpayers: October 31, 2025.

• Belated returns: December 31, 2025, with penalties.

Failure to report crypto income accurately can lead to penalties for under-reporting or mis-reporting, as well as interest on unpaid taxes. Tools like KoinX and Cleartax offer automated tax calculation and reporting solutions to simplify compliance.

Losses from VDAs

A restrictive aspect of India’s crypto tax regime is that losses from VDAs cannot be offset against other income, including gains from different VDAs, nor can they be carried forward to future years. For instance, if you lose ₹5 lakh on one cryptocurrency but gain ₹10 lakh on another, you cannot reduce the taxable gain by the loss, resulting in a tax on the full ₹10 lakh. This policy, unchanged in 2025, has been criticized for discouraging active trading.

Specific Tax Scenarios

Various crypto activities have distinct tax implications, as outlined by Cleartax:

• Airdrops: Taxed at 30% on their fair market value at receipt, per Rule 11UA. If sold later, gains are taxed at 30%, with the initial value as the cost of acquisition.

• Mining: Taxed at 30% on the fair market value at receipt, with no deductions for expenses like electricity costs.

• Staking: Rewards are taxed at 30% upon receipt. Transferring crypto to a staking pool is not taxable, but selling staked crypto incurs a 30% capital gains tax.

• Gifts: Taxed as income from other sources at slab rates if the value exceeds ₹50,000 and is from non-relatives. Gifts from relatives, or on occasions like marriage, are exempt.

These scenarios highlight the complexity of crypto taxation, particularly for active participants in the ecosystem. Consulting a tax professional is recommended to navigate these rules accurately.

Implications for Investors

The 2025 india crypto tax framework reflects India’s dual goals of regulating the crypto market and ensuring tax compliance. The 30% tax rate and 1% TDS, while high, provide clarity for investors compared to the regulatory uncertainty of previous years. However, the inability to offset losses and the new 60% tax on undisclosed income have raised concerns about the tax burden and potential overreach by authorities. Some investors, as noted in community discussions on X, have expressed frustration, arguing that the rules discourage innovation and trading.

For Non-Resident Indians (NRIs) returning to India, the tax implications are particularly significant. NRIs must reassess their crypto holdings to comply with Indian tax laws, as highlighted in a guide by Dinesh Aarjav & Associates.

Future Outlook

While Budget 2025 did not alter the core tax rates, the expanded VDA definition and stricter compliance measures signal the government’s intent to closely monitor the crypto sector. The absence of Goods and Services Tax (GST) clarity remains a point of contention, with Indian crypto exchanges seeking guidance on its applicability, according to Koinly. Future budgets may address GST or introduce concessions, such as loss offsetting, if the crypto industry gains more mainstream acceptance.