Cryptocurrency taxation in India: Analysis

Note by Author

One of my clients, engaged in cryptocurrency trading, recently sought consultancy regarding its GST implications and complicated tax structure of cryptos, which includes 18% GST on platform services,  TDS on sale value, and a flat 30% income tax on gains, his immediate reaction was, “Why is a single asset class subject to so many layers of taxation?”, then I researched on it to know the history and evolution of cryptocurrency in taxation point of view.

Introduction

Cryptocurrency, which was once considered as an unregulated and unrecognised form of digital currency, has now become a part of India’s formal financial and taxation system. From being classified as “virtual digital assets” or VDAs in the Union Budget 2022 to the latest GST and TDS sections that mandates it’s compliance, the legal treatment of crypto has undergone a significant transformation.

In this article I will discuss the historical evolution of crypto taxation in India, and will analyses the current framework as per my knowledge and experience restricting this article to income tax and GST, also I am going to provide key compliance strategies for investors, traders, as well as platforms.

Before we start, I remember one instance where one of client came to me who had filed wrong Income tax return, labelled as “defective” multiple times, only dueto wrong calculation and reporting of the VDA’s in which he had delt, hence to file proper income tax return, right compliance for individual is also important.

Historical timeline relating to the crypto regulation in India

The concept was introduced and evolved from year 2013-2017, In the year 2013, The Reserve Bank of India issued an advisory warning users about the risks that were associated with virtual currencies, at that time, no specific taxation framework existed, and hence crypto transactions were often not reported in tax returns, on other hand few treated it as casual income and few showed them in income from other sources or business income.

Note: casual income are the incomes about which the taxpayer remains uncertain before it is actually received like for example, income from a lottery, crossword competition, betting etc. It is a non-recurring Income as it arises at an irregular interval.

 In the year 2018, RBI issued a circular in the month of April, which prohibits banks and NBFCs from dealing with crypto exchanges or facilitating any service relating to the same. This move made it tough for crypto exchanges to operate, even though holding or trading cryptocurrency was not declared illegal but as we discussed above, still tax treatment of gains or losses from crypto remained ambiguous during this period, with investors treating it either as capital gains or business income, based on their activity.

In March 2020, The Supreme Court of India quashed the ban which prohibited banks and NBFCs from dealing with crypto exchanges or facilitating any service relating to the same which was imposed by RBI in the year 2018 in Internet and Mobile Association of India vs. RBI (2020) 10 SCC 274, reinstating access to banking channels for crypto businesses.

In the year 2022, crypto has gained recognition in the formal financial and taxation system, Union Budget 2022 had also introduced a new taxation regime for virtual digital assets by the Section 115BBH which stated a flat 30% tax on crypto income, other one is Section 194S which is related to  TDS to be charged at the rate of 1% on transfers exceeding specified thresholds, also it stated that the cost of acquisition is only allowed as deduction and set-off of losses of VDA’s with any other income was not allowed, and even Intra-VDA losses were not allowed to be carried forward or set off. This meant that any loss from crypto shall be treated as dead loss.

Before we move forward, you might be thinking about the threshold limit for crypto taxation, let’s discuss it with the help of table:

Payer	Threshold
specified person (that means, individual or HUF not having income under business/profession OR with turnover < Rs. 1 crore / professional receipts < Rs. 50 lakh)	Rs. 50,000 per financial year
other persons (individuals/HUFs having turnover of business > Rs. 1 crore or profession receipts > Rs. 50 lakh, or any companies, firms, etc)	Rs. 10,000 per financial year

TDS is applicable, even if VDA or crypto is sold at a loss, and buyer of crypto currency is required to deduct and deposit TDS, that means buyer should file form 26Q or form 26QE in case individuals not having TAN

Now, what is happening in current phase, from the year 2023 to 2025, crypto have also came into the preview of GST as well, despite the harsh income tax provisions, I am calling harsh because of tax rate and disallowance in setting off of losses with income, GST treatment on these “assets” remained unclear.

To make it clear, in July 2025, the government clarified that GST would now be levied at 18% on services rendered by the crypto platforms, which effectively brought crypto into a full-fledged compliance framework by treating platforms as service providers.

Illustration:

Particulars	Amount
Selling price of crypto/VDA (A)	2,50,000
Cost of acquisition (B)	1,00,000
Taxable income (A-B)	1,50,000
Income tax (flat @30%)	45,000
cess @ 4%	1,800
Total Tax Liability	46,800

Now, let’s discuss the TDS implication on above illustration, where crypto worth Rs. 2,50,000 was sold with Rs. 1,50,000, here TDS that needs to be deducted by buyer is Rs. 2,500

Now suppose, the exchange fee is Rs. 1,000, then the GST shall be charged on that on that fee at the rate of 18% that is Rs. 180. Thus, the effective compliance requires a proper coordination between buyer, seller, as well as exchange.

GST applicability on crypto from July 2025

I noticed that from 7th July 2025, a new classification has been introduced on the GST portal indicating that CBIC has clarified the applicability of GST on crypto-related platform services. However, so far it appears that no specific notification has been issued by the government in this regard.

That means on 7 July 2025, the GST council clarified that all service fees charged by cryptocurrency exchanges/platforms from Indian users are subject to GST at the rate of 18%. It also covered spot & margin trading, derivatives, staking fees, withdrawals, deposits, and other platform services. This falls under the standard rate schedule as per Notification No. 11/2017–Central Tax (Rate) dated 28 June 2017, under Entry 35, which covered “other services not elsewhere classified” taxed at 18% by default.

Now, these crypto platforms have been classified as “Online Service Providers” as per the Section 2(102) of the CGST Act which gave them power to charge GST on trading fees, deposit or withdrawal charges, staking rewards and custody services, wallet management and KYC related services.

Compliance requirements

Crypto platforms must register under GST even if turnover is less than the threshold limit of Rs. 20 lakh, as it’s an inter-state OIDAR service, and attract mandatory registeration, hence it must issue GST invoices, also the reverse charge will not apply in this case due to clear classification as service providers.

Effect on traders of VDA’s

GST is now indirectly borne by traders/investors as part of exchange fees, but it is also clarified that unlike online gaming, the GST is not levied on sale or purchase of crypto assets themselves as they are not classified as “goods” or “services”, but only on service charges by the platform.

Thus, a crypto transaction is currently facing three layers of taxation, making it one of the most highly taxed investment categories in India.

Compliance & Reporting Obligations

In the case of Individuals, as I discussed the case of my client above, it is mandatory to disclose income in schedule VDA and ITR-2 or ITR-3 needs to be filed for the same, an assessee is required to report each and every crypto sale with acquisition cost and sale proceeds, Taxpayer is eligible to claim TDS credit under Form 26AS while filing his ITR.

In such cases, although traders may classify the income as business income, it will still be subject to tax at a flat rate of 30% under Section 115BBH. Additionally, traders are required to maintain proper records, including the date of transaction, type of coin purchased, quantity, rate, platform fees paid, and the trading platform used.

In the case of crypto exchanges, GST registration and monthly return (GSTR-1, GSTR-3B) shall be filed, also they are required to follow TDS compliance as well if they are acting as buyer/facilitator.

Practical challenges

First challenge that is coming practically is that, there is no clarity on airdrops and forks, that means the free distribution of crypto assets which is often promotional, to wallet addresses, usually as part of marketing campaigns or network launches and a fork occurs when a blockchain splits into two, and holders of the original token receive new tokens on the new chain like Bitcoin Cash from Bitcoin, this is still treated inconsistently as it is not clarified by CBDT.

As per my opinion airdrops are treated as gifts governed by section 56(2)(x) of the Income-tax Act and may be treated as income from other sources if received without consideration, and taxed at the fair market value @30% on the date of receipt, as only acquisition cost is allowed to be deducted.

Second one is foreign exchange classification, currently, RBI and FEMA have not recognized crypto as foreign currency hence the cross-border transfers remain risky and may possibly violate FEMA regulations.

Third one is issue or the risk of double taxation, Since GST is imposed on services and income tax is imposed on gains, the total tax outflow could go as high as 35–40% in the case of some transactions.

Suggestions to safeguard investors

To stay compliant, investors are required to choose a reputed platform that could deduct TDS automatically on the transactions, must maintain a detailed transaction logs, especially if you are involved in trading on foreign exchanges and use the reconciliation tools or APIs to track gains, cost basis, TDS, and GST on VDA’s owned or traded by you.

One must remember that you are also required to declare airdrops, mining rewards, as well as foreign holdings in Schedule FA if applicable, to safeguard yourself from future scrutiny or penalties.

Expectations from current trend

The proposed Digital India Act may tighten these crypto regulations, especially for offshore platforms, also CBDC (e₹) adoption may indirectly influence the policy stance on crypto. SEBI and RBI may jointly regulate crypto trading with more robust KYC, AML, and capital control guidelines.

What do you think? You are free to comment your thoughts or expectations below.

Conclusion

Crypto taxation in India has now transitioned from a grey area to a fully codified regulatory framework with a proper recognition in income tax, TDS, as well as in GST. The updates with respect to July 2025 closed one of the last remaining gaps in crypto compliance by bringing crypto platforms under the preview of GST, thereby acknowledging their role as digital service providers.

Investors and platforms must now approach crypto transactions with the same rigor as traditional financial assets. Given the layered tax implications. Hence the crypto in India is no longer tax-free or anonymous or loosely regulated asset. It is a fully taxable digital asset class which is transparent, traceable, and in the preview of taxation.

***

Author may be contacted at aman.rajput@mail.ca.in