India intensifies cryptocurrency tax investigations, sending out over 44,000 notifications to traders
In the ever-evolving world of cryptocurrency, India continues to navigate its regulatory landscape. As of mid-2025, owning, buying, and selling cryptocurrencies is legal in India, but they are not recognized as legal tender. The Indian Rupee remains the sole legal currency for everyday transactions. Cryptocurrencies are classified as Virtual Digital Assets (VDAs) under the Income Tax Act, 1961.
The taxation of crypto gains in India is significant. A 30% flat tax is imposed on profits made from cryptocurrency sales. Additionally, a 1% Tax Deducted at Source (TDS) is levied on transactions exceeding ₹10,000 per year (₹50,000 for specified persons). No allowance for deductions except the cost of acquisition is permitted, and losses from crypto trading cannot be set off against other income sources. Furthermore, an 18% Goods and Services Tax (GST) is applied to platform fees and services related to cryptocurrencies.
The Central Board of Direct Taxes (CBDT) has been actively engaging with the crypto industry to gather feedback on the existing tax framework and regulatory clarity. The authorities are exploring whether a dedicated VDA law is needed and which authority should regulate it (SEBI, RBI, MeitY, or FIU-IND). The 1% TDS rate is under reconsideration, as industry participants argue that it has severely limited liquidity and trading activity, in part causing platforms to shift operations abroad, notably to Dubai.
Despite the legal status, the heavy taxation and regulation have deterred many retail traders and investors. The UAE, for instance, eliminated Value Added Tax from all transactions in cryptocurrency exchanges and conversions in November 2024. In India, enforcement actions such as surveys and raids led to the discovery of an additional ₹630 crore ($72 million) in undisclosed income related to cryptocurrencies.
India ranks among the top countries globally for crypto adoption. However, discrepancies identified through data analytics tools like the Non-Filer Monitoring System (NFMS), Project Insight, and internal databases are followed up with enforcement actions to ensure accurate reporting and recovery of tax dues. Accusations of tax evasion have been directed not only at individual taxpayers but also at crypto exchanges.
Crypto exchanges in India have reported dwindling trading volumes, leading to businesses announcing layoffs or getting shut. Earlier this year, crypto exchange Bybit announced it was temporarily halting its operations in India due to lack of regulatory clarity. However, Coinbase, the largest US-based crypto exchange, is set to re-enter the Indian market later this year.
At press time, Bitcoin trades at $116,720, up 1.2% in the past 24 hours. Pakistan, on the other hand, has shown a more receptive approach toward digital assets, stating earlier this year that it would tap excess energy to mine more Bitcoin.
The Indian government introduced a tax on digital asset income starting in the 2022-23 financial year. In July 2025, Pradeep Bhandari, spokesperson for the Bharatiya Janata Party (BJP), called on the government to explore creating a national Bitcoin reserve. The CBDT has initiated targeted awareness efforts through its NUDGE campaign, issuing a total of 44,057 emails and messages to individuals who were investing or trading in crypto assets but had not reported these transactions in their tax filings.
In conclusion, while cryptocurrency trading is legal in India, it is heavily taxed and regulated with no current reform implemented. However, reassessment by regulators in 2025 may lead to changes in the legal and tax framework for VDAs.
- The Indian government has imposed a significant tax on profits made from cryptocurrency sales, with a 30% flat tax and a 1% Tax Deducted at Source (TDS) on transactions exceeding ₹10,000 per year.
- Crypto exchanges in India have reported dwindling trading volumes, leading to businesses announcing layoffs or getting shut, such as Bybit announcing the temporary halt of its operations in India.
- Despite the heavy taxation and regulation, India ranks among the top countries globally for crypto adoption, and initiatives like the NUDGE campaign have been introduced to boost reporting of cryptocurrency transactions for accurate tax collection.
