India's Crypto Tax Rules Set New Stakes for Investors and Regulators

India’s approach to cryptocurrency regulation has gained clarity amid a rapidly expanding market, with recent data showing strong public support for a structured regulatory framework. A survey conducted by Mudrex revealed that 93% of Indian investors back the introduction of crypto regulation, signaling a demand for legal certainty and consumer protection in what remains a largely speculative asset class . This sentiment aligns with the government’s ongoing efforts to integrate cryptocurrencies into India’s broader financial system while addressing risks such as money laundering and tax evasion.

Currently, India classifies cryptocurrencies as "virtual digital assets" (VDAs) under the Income Tax Act, 1961. This categorization, introduced in the 2022 budget, subjects gains from crypto transactions to a flat 30% tax rate under Section 115BBH, with an additional 1% tax deducted at source (TDS) for transactions exceeding ₹50,000 in a financial year . The framework also restricts tax deductions for expenses related to trading, such as transaction fees and hardware costs, effectively limiting avenues for reducing taxable gains. The absence of loss-settlement provisions further adds to the complexity of crypto taxation, as losses from one transaction cannot be offset against gains from another .

These tax policies have been reinforced by a new legislative framework, the Income Tax (No. 2) Bill, 2025, which received presidential assent in August 2025 and replaced the Income Tax Act, 1961. The new bill expands oversight, incorporating stricter compliance mechanisms and broadening the scope of taxable events. For example, staking rewards, airdrops, and hard forks are now explicitly categorized as taxable income upon receipt, while mining rewards are taxed as regular income . This shift underscores the government’s intent to treat crypto-related activities as legitimate economic endeavors while ensuring tax compliance.

Despite the regulatory clarity, several challenges persist for Indian crypto investors. The taxation of decentralized finance (DeFi) activities, non-fungible tokens (NFTs), and cross-border transactions remains ambiguous. Frequent trading across multiple platforms also complicates record-keeping, raising compliance risks. Additionally, the use of offshore exchanges for trading or holding crypto exposes investors to scrutiny under the Foreign Exchange Management Act (FEMA), with potential double taxation and reporting obligations .

The government has also emphasized transparency through mandatory reporting requirements. From the fiscal year 2025-26, a new Schedule VDA in income tax returns will require detailed reporting of every crypto transaction. Taxpayers must maintain comprehensive records, including transaction dates, exchange statements, and rupee valuations, to substantiate their filings. Non-compliance may result in penalties, including interest on unpaid taxes and potential prosecution for willful evasion .

Industry observers note that the growing investor support for regulation, as highlighted by the Mudrex survey, reflects confidence in India’s evolving crypto ecosystem. By striking a balance between investor protection and market growth, the government aims to position India as a key player in the global crypto space. However, the long-term success of this strategy will depend on the clarity and consistency of policy implementation, as well as the adaptability of tax frameworks to accommodate technological advancements and market dynamics.