India Crypto Tax Framework Stands Firm: Government Rejects Industry Pleas For Relief

NEW DELHI, India – In a definitive move that clarifies the regulatory horizon for digital assets, the Indian government has confirmed it will maintain its existing cryptocurrency tax framework for the 2026-2027 fiscal year. This decision firmly rejects persistent appeals from the domestic crypto industry for significant tax reductions. Consequently, the current 30% capital gains tax on crypto assets and the 1% Tax Deducted at Source (TDS) on transactions will remain in effect. Furthermore, the government has introduced stricter penalties for non-compliance with transaction reporting, signaling a continued focus on enforcement and transparency within this volatile sector.

India Crypto Tax Framework Remains Unchanged

The government’s latest budget submission, as reported by sources including Cointelegraph, explicitly includes the current tax provisions for virtual digital assets (VDAs). This inclusion ends months of speculation and lobbying by industry bodies who argued the high tax rates were stifling innovation and driving trading volumes offshore. The framework, initially introduced in the 2022 Union Budget, treats income from the transfer of VDAs similarly to winnings from lotteries or other speculative activities. Therefore, a flat 30% tax applies on any gains, with no provision for offsetting losses against other income. Additionally, a 1% TDS applies to the value of any crypto transaction above a specified threshold, a measure designed to create an audit trail.

Financial analysts note this decision aligns with a global trend of establishing clear, if stringent, tax regimes for cryptocurrencies. However, India’s combined approach of high capital gains taxation and a transaction-level TDS is particularly unique. The Reserve Bank of India (RBI) has historically expressed concerns about cryptocurrencies, citing risks to financial stability. The government’s tax policy, while not an outright ban, reflects a cautious stance aimed at regulating the ecosystem through fiscal tools. Market data from Indian exchanges shows a significant drop in trading volumes following the initial implementation of these rules in July 2022, a trend that now appears set to continue.

Enhanced Penalties for Reporting Non-Compliance

Alongside the confirmation of the tax rates, the government has significantly bolstered the penalty regime for failing to adhere to reporting requirements. Effective April 1, new fines will be levied for improper or false declarations related to crypto transactions. Specifically, a daily penalty of 200 Indian Rupees (approximately $2.40) will apply for each day of delay or inaccuracy in reporting. More severely, making a false declaration will now incur a substantial one-time penalty of 50,000 Rupees (approximately $600).

This move underscores the authorities’ intent to ensure compliance and gather accurate data on crypto transactions. The TDS mechanism (Section 194S of the Income Tax Act) already mandates that the buyer deduct 1% tax at the time of payment to the seller for transfers above 10,000 Rupees in a financial year (50,000 Rupees for specified non-P2P cases). The new penalties directly target lapses in this reporting chain. Legal experts suggest these measures are designed to formalize the sector and integrate it into the broader financial monitoring framework, addressing concerns about money laundering and tax evasion.

Industry Reaction and Economic Impact

The decision has drawn immediate and disappointed responses from Indian crypto exchanges and advocacy groups. The Blockchain and Crypto Assets Council (BACC), part of the Internet and Mobile Association of India (IAMAI), had been a vocal proponent for reducing the TDS to 0.01% and revisiting the capital gains structure. Industry leaders argue that the high TDS drains liquidity from exchanges and creates operational hurdles, pushing retail and professional traders towards non-compliant peer-to-peer (P2P) platforms or foreign exchanges. A report by the Esya Centre, a technology policy think tank, estimated that the 1% TDS had diverted nearly $3.8 billion in trading volume from Indian VDA exchanges between July 2022 and July 2023.

Conversely, government officials and some economists defend the policy as necessary for consumer protection and revenue certainty in a high-risk asset class. They point out that the volatility and anonymity features of cryptocurrencies necessitate robust reporting and taxation to prevent systemic risks. The tax revenue from VDAs, while not a massive contributor to the exchequer, establishes a precedent and a framework for future growth. The decision to maintain the current system suggests the government is prioritizing regulatory oversight and data collection over stimulating a domestic crypto trading market in the short term.

Global Context and India’s Regulatory Trajectory

India’s stance sits within a complex global mosaic of cryptocurrency regulation. While some nations like El Salvador have embraced Bitcoin as legal tender, and others like Singapore and Switzerland have created supportive regulatory environments, many major economies are taking a more measured approach. The United States applies existing capital gains tax rules to crypto, though legislative clarity remains a work in progress. The European Union’s Markets in Crypto-Assets (MiCA) regulation focuses more on licensing and consumer protection than specific tax rates, which are set by individual member states.

India’s path has been one of gradual, cautious formalization. After a period of uncertainty that included a banking ban proposed by the RBI (later overturned by the Supreme Court in 2020), the 2022 tax rules provided the first clear national framework. The government is also actively participating in global discussions through its G20 presidency, advocating for a coordinated international approach to crypto regulation. The decision to lock in the current tax regime for the coming fiscal years may provide a stable, if challenging, environment for compliant businesses to operate, while the increased penalties aim to shrink the shadow economy.

Key Components of India’s Crypto Tax Policy:

30% Tax on Gains: A flat tax on all income from transferring Virtual Digital Assets (VDAs), with no loss offset provisions.
1% TDS (Section 194S): Deducted at source on payments for crypto transfers above defined thresholds.
No Deduction for Expenses: Costs like mining fees or transaction costs cannot be deducted when calculating taxable gain.
Gift Tax: Gifts of VDAs are taxable in the hands of the recipient.

The Road Ahead for Crypto in India

The confirmation of the tax framework likely closes the door on major fiscal reforms for the crypto sector for the next few years. Industry attention will now pivot towards other aspects of regulation, such as the potential classification of cryptocurrencies as securities or commodities, and the development of a comprehensive central bank digital currency (CBDC), the digital Rupee. The increased penalties also place a greater compliance burden on exchanges and large traders, who must ensure their reporting systems are flawless.

For retail investors, the message is one of clarity amid high costs. Investing in cryptocurrencies in India will continue to carry a significant tax burden, making short-term trading particularly unattractive from a tax-efficiency standpoint. Long-term holders and those using crypto for its underlying technological applications may be less affected, but the reporting requirements apply universally. As the global regulatory landscape evolves, India’s firm stance provides a case study in using taxation as a primary tool for controlling a nascent and disruptive financial technology.

Conclusion

India’s decision to maintain its current crypto tax framework represents a significant moment of regulatory consolidation. By rejecting industry calls for lower taxes and instead increasing penalties for non-compliance, the government has reaffirmed its cautious, oversight-focused approach to virtual digital assets. The 30% capital gains tax and 1% TDS will continue to define the economic reality of crypto trading in the country. While this may limit the growth of formal domestic exchanges, it establishes a stable, enforceable regime aimed at mitigating financial risks and ensuring tax compliance. As India continues to navigate its digital financial future, this tax policy will remain a cornerstone of its cryptocurrency landscape.

FAQs

Q1: What are the main taxes on cryptocurrency in India?
A1: The main taxes are a flat 30% tax on any capital gains earned from transferring cryptocurrencies, and a 1% Tax Deducted at Source (TDS) on the value of transactions above certain thresholds (generally ₹10,000 per year).

Q2: When do the new penalty rules for incorrect reporting start?
A2: The enhanced penalties, including a daily fine of ₹200 for improper reporting and a ₹50,000 penalty for false declarations, are set to take effect on April 1.

Q3: Can I offset my cryptocurrency losses against gains or other income?
A3: No. Under the current Indian crypto tax framework, losses from the transfer of virtual digital assets cannot be set off against any other income, including other capital gains. They can only be carried forward to be set off against gains from VDAs in future years.

Q4: Who is responsible for deducting the 1% TDS on a crypto transaction?
A4: The responsibility falls on the person making the payment (the buyer) to the resident seller. For trades on exchanges, the exchange itself typically acts as the withholding agent and facilitates the TDS deduction.

Q5: Does this tax decision mean India is banning cryptocurrencies?
A5: No, this decision is not a ban. It is a confirmation of the existing tax regime, which effectively recognizes and regulates cryptocurrency transactions by bringing them into the formal tax net. The government is focusing on regulation and taxation rather than prohibition.

India Crypto Tax Framework Stands Firm: Government Rejects Industry Pleas for Relief