Crypto (called Virtual Digital Assets / VDAs by the IT Act) has the worst tax treatment of any asset class in India. Flat 30% on gains, 1% TDS on every transaction, no loss set-off, no indexation. This guide walks through every rule + the legal optimisation paths.
The 4 brutal rules
Rule 1: Flat 30% tax
Section 115BBH: all income from VDA transfer = 30% flat, irrespective of holding period, irrespective of your slab. No basic exemption applies.
Even a ₹1,000 crypto profit gets taxed 30% (₹300). No ₹2.5 lakh exemption that applies to other income.
Rule 2: 1% TDS on every transaction
Section 194S: 1% TDS on every VDA transfer above ₹50,000 per buyer per year. For specified persons (individuals + HUFs with turnover below threshold), the cap is ₹10,000/year.
Indian exchanges (CoinDCX, WazirX, ZebPay) deduct automatically. P2P + DEX trades = buyer is responsible for TDS deduction + filing Form 26QE.
Rule 3: No loss set-off
Crypto LOSSES cannot be set off against ANY other income — not even other crypto gains. ₹5 lakh loss in Bitcoin + ₹5 lakh gain in Ethereum still = ₹5 lakh × 30% = ₹1.5 lakh tax on the Ethereum gain. The Bitcoin loss is lost forever.
Rule 4: No carry forward
Equity losses can be carried forward 8 years. Crypto losses CANNOT be carried forward at all.
Worked example
FY26: ₹10 lakh Bitcoin profit, ₹3 lakh Ethereum loss, ₹2 lakh Solana profit.
- Bitcoin profit ₹10L × 30% = ₹3L tax
- Solana profit ₹2L × 30% = ₹60k tax
- Ethereum loss ₹3L = INELIGIBLE for any set-off
- Total tax: ₹3.6 lakh on net economic gain of ₹9 lakh = effective rate 40%
Compare to equity: same numbers would yield STCG on net ₹9L at 20% = ₹1.8L tax. Crypto pays 2x.
The platform-vs-DEX trap
Many Indian crypto users moved to DEXs (Uniswap, dYdX) to avoid the 1% TDS. Legal trap:
- TDS obligation shifts to the buyer (you) in P2P / DEX transactions.
- You must deduct 1% on every transaction yourself + file Form 26QE quarterly.
- Failure = penalty + interest. IT department actively tracking via on-chain analytics + bank statements.
DEX doesn't escape tax. It shifts the compliance burden to you with worse penalties for missing it.
Reporting in ITR
Crypto gains go in Schedule VDA of ITR-2 or ITR-3. Required disclosures:
- Date of acquisition + sale
- Cost of acquisition (FIFO method)
- Sale consideration
- Profit/loss per transaction
- TDS deducted (claim credit via Form 26AS)
For airdrops + staking rewards: taxable at fair market value on date of receipt at slab rate (NOT 30%). Subsequent sale = 30% on additional gain.
The legal optimisation paths
1. Hold long-term (limited benefit)
Tax rate is same 30% regardless of holding period. But TDS doesn't apply on long holds (no transaction). And avoiding churn reduces realised gains.
2. Use crypto as HUF or family business
HUF gets separate ₹2.5L exemption — but only if income is below ₹2.5L per year. Above that, 30% kicks in. Marginal benefit for small portfolios only.
3. Mining/staking as business income
If you mine/stake at scale, can be treated as business income (not 115BBH) — allowing expense deduction + slab tax. Requires consistent activity + dedicated infrastructure. Most retail miners don't qualify.
4. Move to friendlier jurisdiction
UAE, Singapore, Portugal have crypto-favorable tax. Requires becoming non-resident Indian — complex setup, only worthwhile for ₹5+ crore portfolios.
5. Stay equity-focused
Honest take: for most Indian investors, crypto tax is too punitive to make it worth a meaningful portfolio allocation. Equity LTCG at 12.5% gives a 17-percentage-point edge over crypto's 30%. Time horizon for crypto to recover that tax drag = decades.
Compliance reality
IT department's AIS now captures VDA transactions from Indian exchanges. Mismatches = scrutiny. Foreign exchange + DEX = harder to track but tracked via bank wire patterns + chain analytics tools the department uses.
Filing honestly is the only viable long-term path. Penalty for under-reporting on VDA: 200% of tax + interest.
Use the Income Tax calculator to model your total liability including crypto. File via ITR-2 / ITR-3 with Schedule VDA fully populated.