Taxing Crypto: India's Approach

India’s 2022 Union Budget introduced a specific tax regime for virtual digital assets, a category including cryptocurrencies and NFTs.

The rules

• 30 percent tax on gains from transferring virtual digital assets, regardless of how long they were held, plus applicable surcharge and cess.
• No deductions for expenses other than the cost of acquisition.
• No offsetting of losses: losses on one crypto asset cannot be set off against gains on another, or against other income, and cannot be carried forward.
• 1 percent tax deducted at source, or TDS, on transfers above certain thresholds, effective from July 2022.

Why strict rules?

The government signalled caution about crypto, citing concerns about speculation, consumer protection and financial stability. The Reserve Bank of India has repeatedly expressed strong reservations about private cryptocurrencies. The strict tax treatment was seen as a way to tax gains heavily and track transactions, without formally banning crypto.

Effects

• Lower domestic trading: after the TDS took effect, trading volumes on Indian crypto exchanges fell sharply, and studies found many traders shifted to foreign exchanges.
• Tracking: TDS creates a record of transactions for tax authorities.
• Compliance: foreign exchanges serving Indian users were required to register with India’s Financial Intelligence Unit, and several faced action for non-compliance.

Comparing approaches

Many countries tax crypto gains as capital gains, often allowing losses to offset gains. India’s approach is stricter than most. Crypto industry groups have argued for lower TDS and loss offsetting, while regulators have emphasised caution.