Crypto is legal to hold and trade in India, and it is taxed. What catches people is that it is not taxed like shares. Virtual digital assets sit under a separate regime with rules that are deliberately unfavourable, and the intuitions you built from equity investing will mislead you.
The four rules that define it
- 01Gains on transfer of a virtual digital asset are taxed at a flat rate, regardless of your slab and regardless of how long you held it. There is no long-term or short-term distinction.
- 02The only deduction allowed against the sale consideration is the cost of acquisition. Not exchange fees, not gas fees, not your internet bill, not interest on money you borrowed to buy.
- 03Losses from one virtual digital asset cannot be set off against gains from another, cannot be set off against any other head of income, and cannot be carried forward.
- 04A TDS applies on the transfer of a virtual digital asset above a threshold, deducted by the exchange or the buyer.
What counts as a taxable transfer
More than selling for rupees. Each of these is a transfer and creates a taxable event even though no bank account moves:
- Selling crypto for INR.
- Swapping one crypto for another — the classic trap, since traders make hundreds of these.
- Using crypto to pay for goods or services.
- Receiving crypto as payment for work, which is income first and then has its own cost base.
- Airdrops and gifts, which are generally taxable in the recipient's hands.
Reporting it properly
Crypto income is reported in a dedicated schedule in the return, transaction by transaction. Exchange TDS shows up in your Form 26AS and AIS, so the department already has a picture of your activity before you file — under-reporting is not a quiet decision.
- Download the full transaction history from every exchange and wallet you used, for the whole financial year.
- Reconcile the TDS credited in Form 26AS against your own trade log.
- Compute gain per transfer, using the cost of acquisition only.
- Report foreign exchange holdings separately if you held assets on an overseas platform — this is a distinct disclosure and the penalty for missing it is severe.
The overseas exchange problem
If you held crypto on a non-Indian exchange, you may have a foreign asset disclosure obligation that is entirely separate from the tax on your gains. That regime carries penalties out of all proportion to the amounts involved, and it applies even where there was no gain at all. If any part of your holding sat outside India, get advice before you file rather than after.