How to Pay Taxes on Crypto Income in India: 2024 Complete Guide

Understanding Crypto Taxation Rules in India

Since April 2022, cryptocurrency transactions in India have fallen under specific tax regulations. The Finance Act 2022 introduced Section 115BBH, establishing a 30% tax on income from virtual digital assets (VDAs), including cryptocurrencies. Additionally, a 1% Tax Deducted at Source (TDS) applies to transactions exceeding ₹10,000 per transaction (₹50,000 per year for specified individuals). These rules apply regardless of whether you trade on Indian or international exchanges.

The government defines VDAs as “any information, code, number or token generated through cryptographic means” – covering all major cryptocurrencies like Bitcoin, Ethereum, and altcoins. Losses from crypto cannot offset gains from other income sources, and no deductions (except acquisition costs) are permitted when calculating taxable income.

Types of Crypto Income and Tax Implications

Different crypto activities trigger distinct tax treatments:

• Trading Profits: Gains from selling crypto are taxed at 30% + cess/surcharge. Even minor profits from peer-to-peer trades qualify.
• Staking Rewards: Tokens earned through staking are treated as income at market value when received and taxed at 30%.
• Mining Income: Crypto obtained via mining is taxable as income upon receipt (30% rate). Equipment costs aren’t deductible.
• Airdrops & Forks: Free tokens received are taxed as income based on fair market value at receipt.
• Crypto Gifts: Receiving crypto worth over ₹50,000 as a gift may attract income tax under “Income from Other Sources.”

Calculating Your Crypto Tax Liability

India mandates the FIFO (First-In-First-Out) method for calculating capital gains. Here’s how it works:

1. Identify acquisition dates and costs of your crypto holdings
2. When selling, the oldest coins in your portfolio are considered sold first
3. Calculate gain: Selling Price minus Cost of Acquisition
4. Apply 30% tax + 4% health/education cess on the net gain

Example: If you bought 1 BTC for ₹20 lakhs in January and another for ₹25 lakhs in March, then sold 1 BTC for ₹30 lakhs in April – your cost basis would be ₹20 lakhs (FIFO), resulting in ₹10 lakhs taxable gain. Tax payable: ₹3.12 lakhs (30% of ₹10L + 4% cess).

Step-by-Step Guide to Filing Crypto Taxes

1. Track All Transactions: Use crypto tax software or spreadsheets to record every trade, transfer, and receipt with dates, values, and purposes.
2. Calculate Gains/Losses: Apply FIFO method across all transactions for the financial year (April 1 – March 31).
3. Report in ITR: File Income Tax Return using ITR-2 or ITR-3. Declare crypto income under “Income from Capital Gains” or “Income from Other Sources” in Schedule VDA.
4. Pay TDS Credits: Claim credit for any TDS deducted by exchanges (visible in Form 26AS).
5. Maintain Records: Preserve transaction histories, bank statements, and exchange reports for 6 years.

Common Crypto Tax Mistakes to Avoid

• Ignoring Small Transactions: Even minor trades trigger tax events if profits exist.
• Forgetting TDS Implications: The 1% TDS applies per transaction, not per day/month – frequent traders often overlook this.
• Miscalculating Cost Basis: Using LIFO or average cost instead of mandatory FIFO leads to errors.
• Omitting Non-Exchange Income: Forgetting to report airdrops, staking rewards, or mining income.
• Delaying Documentation: Exchanges may not retain data indefinitely – download transaction histories quarterly.

Frequently Asked Questions

Do I pay tax if I transfer crypto between my own wallets?

No. Transfers between your personal wallets aren’t taxable events. However, record them to accurately track acquisition costs.

Is crypto tax applicable on losses?

While you must report losses, they can’t be offset against other income types. They can only be carried forward for 8 years to set off against future crypto gains.

How does the 1% TDS work for crypto?

Exchanges deduct 1% TDS on transaction value (not profit) when you sell crypto. This applies per transaction exceeding ₹10,000. The deducted amount appears in Form 26AS and is credited against your final tax liability.

Are NFTs taxed like cryptocurrency in India?

Yes. NFTs qualify as Virtual Digital Assets (VDAs) under Section 115BBH and attract identical 30% tax on profits and 1% TDS on sales.

What happens if I don’t report crypto income?

Non-compliance may result in penalties up to 50-200% of tax due, interest charges, and prosecution. The Income Tax Department receives transaction data from exchanges via SFT (Statement of Financial Transactions).

Staying compliant requires meticulous record-keeping and understanding India’s unique crypto tax framework. Consult a chartered accountant specializing in cryptocurrency for complex situations.