How India’s Union Budget 2025 maintains crypto taxes
India’s Union Budget 2025 has made no changes in the existing tax rules for cryptocurrencies, maintaining the provisions of the Finance Act 2022 for virtual digital assets (VDAs) like Bitcoin (BTC) and Ether (ETH).
Under Section 115BBH of the Income Tax Act, profits from selling VDAs are taxed at a flat rate of 30%. You can deduct only the purchase cost, with no allowance for other expenses or losses.
Additionally, a 1% Tax Deducted at Source (TDS) applies to all VDA transactions above 10,000 Indian rupees (about $115), deducted from either the seller or buyer to support ongoing monitoring efforts. A 4% cess is also levied on the crypto tax rates. This cess applies to the total tax liability (30% surcharge, if applicable), not as a standalone tax on crypto transactions.
However, the Union Budget 2025 has established a new system for reporting cryptocurrency transactions. For the financial year (FY) 2025-26, individuals and businesses dealing with VDAs must declare their crypto profits in a specific section of the Income Tax Return (ITR) called Schedule VDA.
This section is designed to simplify tax reporting for cryptocurrencies and enhance transparency. Moreover, it has become mandatory for crypto exchanges and other platforms involved in VDA transactions to provide detailed reports to tax authorities to ensure compliance and avoid penalties.
Section 158B of the Indian Income Tax Act does not directly deal with crypto taxation. Still, it becomes relevant in cases where unreported crypto assets or gains are discovered during search and seizure operations by tax authorities. The Union Budget 2025 introduced this amendment, subjecting unreported cryptocurrency gains to block assessments and treating them similarly to traditional assets such as cash, jewelry and bullion for tax purposes.
Did you know? Unlike traditional stocks, crypto in India isn’t treated as a capital asset. Instead, it is in the same tax category as gambling, lottery and speculative income.
Why 30% of your crypto gains isn’t the worst part in Indian crypto taxation
While the 30% flat tax on cryptocurrency gains in India may be significant, the broader regulatory framework imposes even greater challenges for crypto users in 2025. The Central Board of Direct Taxes (CBDT) is expected to enforce compliance strictly, targeting unreported crypto income as undisclosed assets.
Here are the key challenges that extend beyond the tax rate:
- Enhanced reporting requirements: You must complete Schedule VDA when filing the Income Tax Return (ITR), listing every crypto transaction with details such as date, purchase cost and sale price. This detailed reporting is mandatory. Indian crypto exchanges must also share user transaction data with the Income Tax Department, enabling closer monitoring.
- Expanded tax scope: From Feb. 1, 2025, unreported crypto income discovered during tax raids can be taxed at 60%, along with additional surcharges and cess. This applies even to unintentional errors, making minor oversights costly.
- Stricter enforcement and penalties: The CBDT has intensified its “nudge” program in 2025, sending mass notices to crypto traders. Failure to report accurately, underpayment, or misreporting can result in penalties ranging from 50% to 200% of the tax owed, along with interest. You could also be imprisoned for up to seven years.
- Comprehensive monitoring system: India employs a multi-source data verification system, cross-checking information from crypto exchanges, 1% TDS filings, Form 26AS, and the Annual Information Statement (AIS). Any discrepancies between reported and actual transactions may lead to tax investigations or reassessment notices.
- No relief for losses or deductions: The 30% tax rate is applied without allowing deductions beyond the purchase cost. Traders cannot offset losses between different cryptocurrencies or against other income, creating unfavorable outcomes, especially in a declining market.
- No distinction between short-term and long-term holdings: India imposes tax uniformly regardless of how long an asset is held. A flat 30% tax rate applies to all gains from VDAs, irrespective of the holding period. This approach toward crypto gains differs from the taxation of stocks or mutual funds, where long-term investments receive preferential tax treatment.
- International reporting obligations: India is expected to adopt the Organisation for Economic Co-operation and Development (OECD)’s Crypto-Asset Reporting Framework (CARF), which may require foreign exchanges to report Indian users’ crypto holdings. This could reveal undeclared offshore wallets, increasing the risk of international tax notices.
Did you know? Japan taxes crypto gains as miscellaneous income, with rates as high as 55%. It is one of the most heavily taxed countries for digital assets.
How 1% TDS pushed Indian crypto traders to offshore exchanges
The 1% TDS on VDA transactions in India, announced in February 2022 and implemented in July 2022, led to a significant shift in trading activity to foreign platforms. A study by the Esya Centre, published in November 2023, reports that as many as 5 million Indian users moved to offshore exchanges since the policy’s introduction.
As the data suggests, the TDS policy has failed in its objective to curb speculative trading and boost tracking of transactions. Named “Impact Assessment of Tax Deducted at Source on the Indian Virtual Digital Asset Market,” the Esys Centre report reveals Indian users traded VDAs worth over $42 billion on offshore exchanges between July 2022 and July 2023, accounting for more than 90% of their total trading volume.
This shift has resulted in significant revenue losses for the Indian government. While about $31 million was collected via TDS, $30 million (97%) came from domestic exchanges, and a mere $0.84 million was collected from foreign platforms, just 0.2% of the estimated $4.2 billion in lost tax revenue.
Moreover, the policy has not reduced speculation in trading or enhanced transparency. In the aftermath of the policy, Indian platforms saw declines of up to 74% in downloads, web traffic and active users, while offshore platforms experienced steady growth.
Policy resistance to crypto in India has made investors wary about investing in crypto. Many feel the trading opportunities aren’t worth the risk of government scrutiny. They are hesitant to leave funds with Indian exchanges at risk of facing tax scrutiny and raids.
Did you know? In Portugal, retail investors pay zero tax on crypto gains. But if you trade professionally, you might still be taxed as a business.
How crypto tax regime harmed the local exchanges in India
India’s cryptocurrency tax framework, including a 30% flat tax on profits and a 1% TDS on each transaction, has significantly harmed the country’s once-thriving digital asset sector, weakening local exchanges and hindering innovation.
An example of how tax policy negatively impacted local exchanges is the closure of WazirX’s NFT marketplace in February 2024. The exchange cited insufficient user activity and low revenue as key reasons for the decision. Despite operational costs in thousands of dollars, the marketplace generated only $6 in fees over the last 30 days before the closure, reflecting the sharp decline in domestic crypto engagement. Similarly, WeTrade, a trading app targeting a $12 million revenue goal, halted operations, attributing the decision to an unfavorable regulatory environment.
Since the crypto tax regime in India came into effect in July 2022, Indian exchanges have experienced trading volume declines of up to 70%. WazirX, for instance, saw a 63% drop in volume in a single day following the TDS announcement.
App downloads and web traffic also plummeted, driving users to foreign platforms, particularly in Dubai and Singapore. Many Indian investors have used the Liberalised Remittance Scheme (LRS) to legally transfer up to $250,000 annually to these offshore exchanges. The LRS, launched by the Reserve Bank of India (RBI) in 2004, permits Indian residents to send a specific amount overseas yearly for various approved purposes.
How India compares with crypto tax jurisdictions in other countries
India’s cryptocurrency tax system is one of the most stringent worldwide. This is quite the opposite of crypto-friendly regions like Singapore and Dubai, which have become global centers for digital assets due to their lenient tax policies.
In Singapore, cryptocurrencies are considered intangible assets, and trading profits are exempt from taxation, attracting investors and businesses. Also, digital Token Service Providers (DTSPs) in Singapore must stop serving overseas markets by June 30, 2025, unless they are licensed by the Monetary Authority of Singapore (MAS).
Dubai’s Virtual Assets Regulatory Authority (VARA) governs crypto, aiming to foster innovation with clear rules. While individuals generally face no income or capital gains tax on crypto, businesses earning over 375,000 UAE dirhams (about $102,000) are subject to a 9% corporate tax.
Brazil has eliminated previous crypto tax exemptions, imposing a uniform 17.5% tax rate on all crypto capital gains for individuals, regardless of transaction size or where the assets are held.
India’s flat 30% tax on crypto gains aligns the country with high-tax countries like Belgium, Iceland, Israel, the Philippines and Japan, where crypto taxes range from 33% to 50%.
The US taxes long-term gains up to 20% and allows deductions. Many EU countries apply progressive rates and offer reliefs, making India’s approach more punitive and rigid.
Overall, India’s tax policy treats crypto more like gambling than an investment, aiming to discourage speculation, collect transaction data through mandatory reporting and tax gains at a high rate. This approach prioritizes revenue collection over fostering innovation or growth in the digital asset sector.
Did you know? The EU’s MiCA focuses on regulation, not taxation, emphasizing consumer protection, stablecoin oversight and market integrity, while allowing member states to set their own, often more balanced, tax policies.
Does India’s crypto sector have hope for policy change?
Crypto companies and investors in India are cautiously hopeful as the country discusses crypto regulation at global forums like the G20 Summit, hinting at a potential change in policy.
The industry hopes ongoing international talks could lead the government to reduce the heavy 1% TDS and the fixed 30% capital gains tax, which have pushed trading activity overseas and limited domestic market liquidity.
Lowering the TDS could significantly boost exchange activity, recover lost trading volumes, and enhance India’s position in the $3.3 trillion global crypto market.
Recent developments indicate that regulators may be open to change. Reuters reports that India is reviewing its crypto policies in light of global trends. If India implements reforms like lowering TDS and allowing loss offsets, it could retain domestic trading volumes, foster innovation and rebuild investor trust.