Connect with us +91 966 777 9615
Whether you are an investment enthusiast always on the hunt for the next big financial opportunity or trend (such as a stock, mutual fund, or digital asset) or an individual already earning capital gains from the new-age currency. Then you must be aware of the new-age wave: Cryptocurrencies, the buzzword in today’s financial market, with their cutting-edge technology, decentralized structure, and blockchain-backed security. Crypto assets have carved out a distinct identity, capturing the attention of investors across the globe. But, along with the investment knowledge, we hope that you are also aware that the income you earn from Crypto is taxable in India. Yes, you read it right; even though its legal status is still evolving, the Indian government has brought crypto transactions under a strict tax regime. Before you buy, sell, or HODL, ensure you’re not only investing smartly but also staying tax-compliant.
In this blog, we’ll explore the legal framework and tax filing requirements for cryptocurrencies under the Income Tax Act of 1961 together. But first, let’s start with the basics — what exactly are cryptocurrencies?
Cryptocurrency is a type of digital or virtual money that uses blockchain technology to secure transactions. Unlike traditional currencies, cryptocurrencies are decentralized. They are not controlled by any government or central banks and are maintained as a digital ledger.
Crypto itself is built to be decentralized; however, its decentralized status is based on countryspecific regulations. In some places, people can use it freely; in others, the government limits or controls access. Technically, cryptocurrency is fully decentralized, but its decentralized status is based on countryspecific regulations. In some places, people can use it freely; in others, the government limits or controls access.
| Country | Status & Impact on Decentralization |
| USA | Legal but regulated; companies must follow strict rules |
| India | Not banned, but highly taxed and monitored by the government |
| China | Trading and mining are banned; the government promotes its own centralized digital currency— CBDC |
| El Salvador | Fully legal and adopted Bitcoin as legal tender |
| EU Countries | Regulated under clear laws (MiCA framework), still decentralized in use |
Finance Minister Nirmala Sitharaman presented the union budget in the year 2022, in which she came up with new provisions governing the taxation of “Virtual Digital Assets.”
The Indian government officially reorganized cryptocurrency as Virtual Digital Assets (VDAs) and also implemented a specific taxation framework for these assets.
It says VDAs refer to any information, digital code, number, or token (not being Indian currency or foreign currency) that is generated through cryptographic means or otherwise, which provides a digital representation of value and is made using special computer codes or technology (like cryptography) that people use to hold, send, or trade online sometimes as an investment, sometimes as money. It can be moved or stored electronically.
The definition explicitly includes
Note: Specified under section 2(47A) of Income Tax act, 1961
You have to pay a flat 30% tax (plus 4% CESS) on the income you make from transferring these digital assets, such as Crypto and NFTs. It means if you make a profit from selling Crypto, 30% of that profit goes as tax. However, this is not the case when holding and transferring between your own wallets.
No deduction, except the cost of acquisition, will be allowed while reporting income from the transfer of digital assets.
Note: Specified under Section 115BBH of Income Tax Act,1961
When a person or entity pays money to a resident for transferring a virtual digital asset (such as selling Cryptocurrency), they must deduct a 1% tax from that payment. It must be deducted either when the money is credited to the recipient’s account or when the payment is made, whichever happens first.
Note: If TDS is applicable under section 194S, then TDS is not applicable for e-commerce operators to e-commerce participants under section 195O
No TDS under exception
The tax treatment of gifts varies depending on whether the gift is in the form of money, immovable property, or movable property. In the Union Budget 2022, VDAs were explicitly classified as movable property for tax purposes.
Let’s understand the different scenarios that state which gifts are taxable and which are not.
| Scenario | Tax applicability |
| Cryptocurrency is received as a gift from a relative, such as parents, siblings, or a spouse. | Not taxable |
| Crypto received as a gift from a non-relative, and its value exceeds ₹50,000 (in total during the year) | Taxable — Entire fair market value is taxable under “Income from Other Sources” |
| Crypto received as a gift on special occasions, through inheritance or will, marriage, or in contemplation of death | Not taxable |
| Crypto gift valued below ₹50,000 (from non-relative) | Not taxable — If the total value of all such gifts in a year is below ₹50,000 |
Note: Specified under Section 56(2)(X) of Income Tax Act, 1961
The value of the cryptocurrency is calculated based on its Fair Market Value (FMV) on the date it is received. The FMV is usually determined using exchange rates from Indian or global crypto platforms.
If you later sell the gifted cryptocurrency, you will pay a 30% tax (plus cess and surcharge) on the capital gain.
The holding period and cost of acquisition are determined based on the original purchase date and price of the giver, not the date or value at which you received the gift.
The capital gain is calculated as —
Capital Gain = Sale Price (in INR) – Cost of Acquisition (giver’s purchase price in INR)
Can you set off crypto losses?
Losses from the transfer of Virtual Digital Assets (VDAs)—such as cryptocurrencies or NFTs—cannot be set off against any other income (including other VDAs), nor can they be carried forward to subsequent years.
Filing of Crypto Income
It is mandatory for individuals to declare income from cryptocurrencies if held as investments or as business income if held for trading purposes.
Both ITR-2 and ITR-3 include a dedicated section called Schedule Virtual Digital Assets (Schedule VDA) for reporting gains or income from cryptocurrencies and other virtual digital assets.
The deadline to file your income tax return is as follows:
Note: Belated returns can be filed after this date but before 31st December 20XX with penalties.
Penalties of filing
If you fail to deduct or deposit TDS, you still have penalties, which have been mentioned under sections 271C and 276B
| Consequence | Description |
| Penalty (Sec 271C) | Equal to TDS amount not deducted or short deducted |
| Interest | 1% per month for late deduction + 1.5% per month for late deposit |
| Penalty (Sec 271H) | Rs. 10,000 to Rs. 1,00,000 for late TDS return filing |
| Late filing fee (Sec 234E) | Rs. 200 per day for late filing of TDS return |
| Prosecution (Sec 276B) | Possible fines and imprisonment for willful default |
| Higher TDS rate | 20% if the payee does not provide PAN |
Cryptocurrencies are relatively new to the financial market. While investor interest is growing rapidly, many individuals remain unaware of the tax implications due to a lack of technical or legal knowledge. At Mercurius, we recognize the importance of staying compliant with evolving tax laws, including new amendments and filing deadlines. Our team of experienced tax professionals is here to simplify the process for you—guiding you through every step of your ITR filing and ensuring stress-free compliance with all legal requirements.
At Mercurius, we also offer comprehensive end-to-end support for setting up your business in India, including services in accounting, bookkeeping, auditing, taxation, trademark registration, business structuring, and strategic advisory services. If you’d like personalized assistance, feel free to connect with us.
