Crypto Tax in India: Where We Are & What Must Be Different 2025

Cryptocurrency in India is growing so fast it’s got the government’s attention — and for good reasons. Suppose that there were more than 200 million crypto accounts in India. That’s nearly as many as demat accounts (used for stocks), which have been built up over decades. For perspective, the stock market has been mainstream for over 100 years; crypto(Crypto Tax in India) is climbing up that ladder in just a few. This is a explosive growth and there is a strong debate within the government circles on how to better regulate crypto not only to shield investors but also to keep India competitive in the world.

Here is a summary of what the authorities are requesting, what is already in effect, what can be made better and what crypto-investors/enthusiasts need to look out.

Table of Contents

What’s the Current Crypto and Tax Landscape in India

First, it helps to understand what rules already exist around crypto, or more officially, Virtual Digital Assets (VDAs).

In Finance Act 2022, India introduced Section 115BBH under the Income Tax Act. Under this, profits from transfers of VDAs are taxed at a flat rate of 30%. There are very limited deductions — basically only the cost of acquisition. Expenses beyond that (exchange fees, etc.) can’t be deducted.
Also, a 1% TDS (Tax Deducted at Source) rule was introduced under Section 194S. That means for many VDA transactions, a 1% amount of the transaction value has to be deducted and paid to the government.
Losses from trading or dealing with VDAs cannot be set off against income from other sources, and cannot be carried forward to future years. So if you lose money in crypto, you can’t reduce your tax burden via those losses.
Exchanges and platforms dealing in VDAs are being required to report more transaction data, and more entities are being brought under regulatory or compliance obligations (for example, registries under anti‑money laundering laws).

This framework shows India wants to regulate crypto in some sense: collect taxes, monitor transactions, discourage misuse, etc. But many people feel that the rules are still patchy, unclear, or even burdensome.

What the Authorities Are Asking & Considering

Because of the rapid adoption of crypto and some observed problems (tax evasion, confusion among investors, trading moving overseas, etc.), government bodies — especially the Central Board of Direct Taxes (CBDT) — are asking important questions. These mirror what many crypto users and businesses have raised. Some of those key questions:

Is the existing legal and regulatory framework enough, or do we need an entirely new law governing VDAs? Which regulator should be in charge — RBI, SEBI, Meity (Ministry of Electronics & Information Technology), FIU (Financial Intelligence Unit), or some other body?
Why are so many trades moving offshore? Is it because the TDS is too high, or because the rules around taxation & regulation are unclear or unworkable?
How does India’s crypto tax rules compare with other countries? Are we being too strict or not supportive enough for innovation?
What’s the impact of the 30% flat tax combined with non‑allowance of loss set‑offs on trading volumes, investor morale & participation?
What about the complexities in implementing TDS (reporting, compliance, administrative overhead)? Is the mechanism working well or causing unintended problems?

These questions show the government is not only collecting feedback but is considering whether to recalibrate.

Challenges Under the Current Regime

From what people using and investing in crypto say, and from what’s been reported in media & expert commentary, here are some of the key challenges or pain points:

Drained liquidity / lower trading volumes: Some traders feel that the tax overhead and strict rules are pushing trading activity to foreign exchanges or unregulated platforms. People do this to avoid TDS or unfavorable conditions.
No set‑off of losses: Imagine losing in crypto but not being able to adjust your taxable income using those losses — this makes it risky. Many feel this discourages experimentation or larger investment.
Complex reporting & compliance: Keeping track of acquisition costs, transaction dates, values in INR, wallet transfers, etc., is a lot. Exchanges may provide transaction histories, but aligning them with tax forms, schedule VDA, and other disclosures is often confusing.
Regulatory ambiguity: Since there is no one and only law that regulates VDAs, such issues as who regulates crypto? remain open. Some view crypto as a financial instrument, others treat it as a technology product, others as property, etc. This confusion increases risk from legal, tax & compliance perspectives.
Tax burden perception: Some people see the 30% tax (plus TDS) plus restricted deductions as too much. They think this may reduce India’s attractiveness as a place for crypto innovation or block smaller investors.

What Could Be Improved: Suggestions

Based on what people are discussing, and what seems fair / workable, here are some suggestions that might help make crypto regulation / taxation in India more balanced:

Choose a clear, appropriate regulator
A lot of them imply that RBI or Meity would be more appropriate than SEBI is. The argument is that crypto / VDAs are not exactly like securities (which SEBI regulates), and more like tech + value exchange assets. Since tech, digital infrastructure, encryption, distributed ledgers are involved, Meity’s domain or RBI’s oversight might make more sense for clarity.
Allow loss set‑offs / carry forward of losses
If you trade crypto and incur losses, being able to offset them against profits (of VDAs), or carry them forward, makes the tax rules more forgiving and less risky. At least some part of losses should be recognized, especially if one treats crypto more like investment assets.
Simplify & align tax reporting More streamlined methods for declaring profits & losses, transaction histories, etc., possibly with standardized tools or templates from the government. And better coordination between exchanges, tax authorities, etc., so that taxpayer doesn’t have to do too much manual reconciliation.
Review the TDS rate or its thresholds Perhaps reduce the burden of TDS or raise thresholds for small scale, to reduce friction for small or occasional crypto investors.
Allow financial instruments like ETFs / mutual funds to access crypto / VDAs If crypto is allowed in regulated funds, retail investors could participate through safer, more standard instruments rather than directly handling exchanges, wallets, and risk themselves. This expands access and can bring in better oversight.
More transparent and balanced regulation Regulations which protect investor interest, curb misuse (fraud, laundering), but don’t stifle innovation. People have the idea that India needs to adopt best practices of the world, cooperate with world but India needs to bend the rules to suit Indian environment.

What India Might Lose or Gain Based on Its Choice

Why is this debate so important? Because the decision India takes will have long‑term implications:

Competitiveness: There are already more developed crypto frameworks built in countries such as the U.S., EU, Singapore and others. Clarity in regulation tends to attract investment, innovation, talent. If India lags, it risks losing out.
Innovation vs risk: With good regulation, India can promote fintech / Web3 innovation, blockchain startups, etc., while also controlling risks (fraud, scams, money laundering). In the absence of clarity, individuals can invest without knowing and they make losses and this may result in a lack of trust.
Tax revenue: Proper regulation and clarity can help increase tax collection in a fair way. But if policies are seen as too harsh, people may avoid them, underreport, or move operations abroad.
Investor confidence: Retail investors want to feel safe: clear rules, fair taxes, ability to recover losses, transparency. The doubt does not encourage action.

What You, as a Crypto Investor, Should Do

While all this regulation debate continues, here are some actions you might consider to stay safe, compliant, and get good value:

Keep a detailed account of all the transactions date, price (in INR), exchange and wallet transfer.
When filing ITR, use Schedule VDA correctly. Don’t miss reporting crypto profits.
If you incur losses, document them well even if current law doesn’t allow set‑offs — they may be useful in future legal changes or debates.
Keep an eye on government announcements: discussion papers, feedback deadlines, regulatory drafts — often they allow public comment. Participate if possible or keep informed.
Consider using regulated exchanges / platforms with good reputation.

Conclusion

India is at a crypto crossroads. The mere magnitude of the user base is compelling regulators to pose hard questions. The existing taxation system (30% flat tax, 1% TDS, no set off on losses) has been considered to be a step in the right direction but many believe it requires further polishing. The regulator selected, the transparency of legislation and the ratio between taxation and innovation will determine whether India will become a crypto powerhouse – or only be left in the dust of the world policy changes.

f you ask me, the best path forward is simplification, fairness, transparency, and giving intermediate reliefs (like loss set‑offs) without compromising on compliance. In such a manner, investors and innovators will be able to prosper.