Crypto in India occupies a strange middle ground: it’s legal to buy, sell, and hold, but it isn’t recognized as legal tender, and the tax treatment is among the strictest in the world. If you’re trading — or thinking about starting — here’s what actually applies to you right now.

Is Cryptocurrency Legal in India?

Yes, trading and holding cryptocurrency is legal in India. It is **not** recognized as legal tender under the RBI Act, meaning you can’t use it to settle debts or make payments the way you would with rupees, but there’s no blanket ban on buying, selling, or holding it. The government regulates crypto primarily through taxation rather than through a dedicated licensing framework for the asset class itself, which is why the tax rules matter more here than in most other investment categories.

How Crypto Is Taxed: The 30% Flat Rate?

Since the Finance Act 2022, profits from what the law calls Virtual Digital Assets (VDAs) — cryptocurrency, NFTs, and similar digital assets — are taxed under Section 115BBH:

– **A flat 30% tax on profits**, plus a 4% cess, taking the effective rate to roughly 31.2% (higher still if a surcharge applies at higher income levels).
– **This rate applies regardless of your income slab or how long you held the asset** — there’s no distinction between short-term and long-term gains like there is with stocks or mutual funds.
– **Only the cost of acquisition can be deducted.** Trading fees, mining costs, and other expenses generally aren’t allowed as deductions against your gains.
– **Losses cannot be set off against gains from other crypto assets, or against any other income**, and cannot be carried forward to future years. If you lose money on one coin and profit on another in the same year, you still pay 30% on the profitable trade — the loss doesn’t offset it.

The Union Budget presented in February 2026 kept this framework unchanged for FY 2026-27, despite continued lobbying from the industry for relief. If anything, the direction has been toward stricter enforcement, not looser rules.

TDS: The 1% That Catches Many Traders Off Guard

Alongside the 30% tax on profits, Section 194S requires platforms to deduct 1% TDS (Tax Deducted at Source) on crypto transactions above a threshold in a financial year — this applies even if the trade itself doesn’t result in a profit. This TDS isn’t an extra tax on top of the 30% — it’s an advance collection mechanism, and you can claim credit for it when filing your return, visible against your PAN in Form 26AS.

The practical effect: even frequent traders making modest profits per trade can see meaningful TDS deducted across many transactions, which is one reason high-frequency crypto trading has become less common in India — the tax drag adds up fast.

Reporting Crypto in Your ITR

All VDA transactions need to be reported in **Schedule VDA**, a dedicated section within ITR-2 or ITR-3 depending on your overall income profile. This requires transaction-level detail — type of asset, date of transfer, and computation of gains — rather than a single lump-sum figure. Non-compliance now carries tightened penalties, including daily fines in some cases, so this isn’t an area where “I’ll figure it out later” is a safe approach.

The Bigger Risks Beyond Tax

Tax compliance aside, crypto carries risks that are worth being clear-eyed about:

– **Extreme price volatility.** Crypto assets can lose a large share of their value in a short period, with no underlying cash flows (like a company’s earnings) to anchor a “fair value.”
– **No regulatory protection like SEBI offers for stocks**, or the deposit insurance that applies to bank accounts. If an exchange collapses or is hacked, recovering your funds isn’t guaranteed.
– **The 30% flat tax with no loss offset changes the risk-reward math significantly** compared to equities — you can’t use a loss in one asset to reduce your tax bill on a gain elsewhere, which most other asset classes in India do allow.
– **Regulatory direction can shift.** While trading is currently legal, India’s stance has evolved before and could evolve again — treat any current framework as the rules today, not a permanent guarantee.

Should You Invest in Crypto?

This isn’t a yes/no question anyone else can answer for you, but a few honest questions are worth sitting with: Are you treating this as a small, speculative allocation, or a core part of your portfolio? Can you afford to lose this amount entirely without it affecting your financial goals? Have you actually accounted for the 30% tax and 1% TDS in your expected returns, or are you calculating profit before tax? If crypto is a small slice of a diversified portfolio and you’ve priced in the tax drag honestly, that’s a very different position than treating it as a primary wealth-building strategy.

Frequently Asked Questions?

**Do I have to pay tax if I only hold crypto and don’t sell?**
No — the 30% tax applies to profits realized on transfer (selling, swapping, or spending crypto), not simply on holding an asset that has increased in value on paper.

**Can I offset crypto losses against my salary income or stock market gains?**
No. Crypto losses can only be adjusted within crypto itself in very limited ways, and generally cannot be set off against other income sources or carried forward to future years — this is one of the strictest aspects of India’s crypto tax regime.

**What happens if an exchange doesn’t deduct TDS correctly?**
The exchange, not you, generally faces penalties and interest for TDS non-compliance — but as the transacting individual, it’s still worth checking your Form 26AS to confirm TDS credits are showing up correctly against your PAN.

**Is investing in crypto through an Indian exchange safer than a foreign one?**
Indian exchanges are more likely to comply with TDS and reporting requirements automatically, which simplifies your tax filing. Foreign exchanges may not deduct TDS at all, shifting the compliance burden entirely onto you.

Related Reading on Dhan Maitri

– [Old vs New Tax Regime — Which Should You Choose?](https://dhanmaitri.in/en/old-vs-new-tax-regime/)
– [ITR Filing — Step-by-Step Guide for Salaried Employees](https://dhanmaitri.in/en/itr-filing-guide/)

— DhanMaitri Desk
Simple financial wisdom for every Indian