Crypto-assets in India: tax, TDS and FIU registration

Commerce (General / Accounting and Finance / Banking and Insurance) (B.Com) · Blockchain and crypto-assets · free study notes for exams, placements and interviews

In short

A crypto-asset (legally a virtual digital asset, VDA) is taxed in India under a special flat-rate scheme — 30% on the gain with no deductions and no loss set-off — plus a 1% tax deducted at source on the sale consideration. Separately, anyone who exchanges, transfers or custodies VDAs for others is a reporting entity under the Prevention of Money-laundering Act, 2002 (PMLA) and must register with the Financial Intelligence Unit – India (FIU-IND) and run full KYC and suspicious-transaction reporting. Crypto is neither banned nor given legal-tender status in India: it is taxed and it is AML-regulated, but there is still no dedicated securities-style regulator for it. B.Com students meet this in Direct Taxation, Banking and Insurance, and Financial Services papers, and in interviews at exchanges (CoinDCX, CoinSwitch, WazirX, ZebPay), Big-4 and mid-tier tax firms, bank compliance and AML desks, and fintech RegTech roles.

Explained

What a "virtual digital asset" is in Indian law

The VDA definition was inserted by the Finance Act, 2022 and carried into the Income-tax Act, 2025 (in force 1 April 2026), which renumbered every section; the charging provision is the former section 115BBH and the TDS provision the former section 194S — quote them by name unless your syllabus gives the new numbers.
A VDA is any information, code, number or token (not Indian or foreign currency) generated through cryptographic means, with or without consideration, having an inherent value, traded or transferred electronically, or held as a store of value or unit of account.
Included: cryptocurrencies (Bitcoin, Ether), stablecoins, utility and governance tokens, and non-fungible tokens notified as VDAs (NFT notification, 2022) — except an NFT whose transfer also transfers ownership of an underlying tangible asset.
Excluded by notification: gift cards and vouchers, mileage/reward points, subscriptions to websites or platforms.
Excluded by definition: Indian currency, foreign currency, and the RBI's digital rupee (e₹ / CBDC), which is legal tender issued under the Reserve Bank of India Act and is not a VDA.
From 1 April 2026 the definition was widened to expressly cover any crypto-asset that is a digital representation of value relying on a cryptographically secured distributed ledger, aligning it with the OECD's crypto-asset definition.

How the 30% flat tax works

Charge: income from the transfer of a VDA is taxed at a flat 30%, plus applicable surcharge and 4% health and education cess. Transfer includes sale, swap of one VDA for another, and use of a VDA to pay for goods or services.
Only deduction allowed: the cost of acquisition. Mining rigs, electricity, internet, platform brokerage, advisory fees, interest on borrowings and the standard Chapter VI-A style deductions are not deductible against VDA income.
No indexation and no distinction between short-term and long-term — holding period is irrelevant.
No set-off: a loss from transferring one VDA cannot be set off against gain on another VDA, nor against any other head of income; and it cannot be carried forward. Other losses (business, capital) cannot be set off against VDA income either.
Mined coins: cost of acquisition is treated as nil, so the entire sale consideration is taxed; mining expenditure is not allowed.
Gifts: a VDA received without consideration is taxable in the recipient's hands as income from other sources under the gift provision (aggregate above ₹50,000 in the year, with the usual relative/marriage/inheritance exemptions); the recipient's cost on later sale is the value taxed as a gift.
Head of income: the flat rate applies whichever head it falls under; a frequent trader may be assessed under business income but the 30% charge still governs transfers of VDAs. Airdrop, staking and interest receipts are generally taxed as income from other sources at slab rates on receipt and then under the VDA scheme on sale — the CBDT has not issued a comprehensive clarification, so positions vary.
Reporting: Schedule VDA in ITR-2 / ITR-3 requires transaction-wise disclosure (date of acquisition, date of transfer, cost, consideration). Advance tax applies, with interest for shortfall.
Enforcement: VDAs are within the "virtual digital space" that search and survey powers may access, and undisclosed VDAs can be assessed under the block-assessment provisions for undisclosed income.

The 1% TDS on transfer

Rate and base: 1% of the consideration for transfer of a VDA — on the gross value, not the profit. So TDS is payable even on a loss-making sale.
Thresholds per financial year: ₹50,000 for a specified person (an individual or HUF with no business/professional income, or with business turnover up to ₹1 crore / professional receipts up to ₹50 lakh); ₹10,000 for everyone else.
Timing: deduct at the time of credit or payment, whichever is earlier.
Who deducts: normally the buyer; where the trade goes through an exchange, CBDT circulars (13/2022 and 14/2022) let the exchange deduct and pay, under a written agreement with the broker/seller.
Consideration in kind (crypto-to-crypto swap): both legs are a transfer, so each side is a seller; the payer must ensure tax on the value in kind has been paid, and exchanges deduct 1% in kind on each leg.
Compliance forms: a specified person files Form 26QE (challan-cum-statement) within 30 days of the end of the month and issues Form 16E; others report in the quarterly Form 26Q and issue Form 16A. Credit is claimed in the return, so excess TDS is refundable.
Default consequences: interest at 1% per month for failure to deduct and 1.5% per month for deducting and not paying, a penalty equal to the tax not deducted, a late-filing fee of ₹200 per day, and prosecution in serious cases.
No TDS applies to a mere transfer between a person's own wallets (no consideration), and the deduction is not required on the e₹.

CARF reporting and international exchange of information

The Finance Act, 2025 added a reporting obligation on prescribed reporting entities (exchanges, intermediaries and other crypto-asset service providers) to file statements of crypto-asset transactions, effective from 1 April 2026, with the form and due dates set by CBDT notification.
This implements the OECD Crypto-Asset Reporting Framework (CARF); India is among the jurisdictions committed to beginning automatic exchange of crypto-asset information, so offshore holdings become visible to the Indian tax administration.
Foreign-held crypto-assets also attract the Schedule FA foreign-asset disclosure in the return for residents, and the Black Money (Undisclosed Foreign Income and Assets) Act exposure for non-disclosure.

FIU-IND registration and PMLA obligations

By a notification of 7 March 2023, activities in VDAs were brought within "person carrying on designated business or profession" under the PMLA, making a VDA Service Provider (VDA SP) a reporting entity. FIU-IND issued guidelines for VDA SPs in March 2023.
Five covered activities: (1) exchange between VDAs and fiat currency; (2) exchange between one or more forms of VDAs; (3) transfer of VDAs; (4) safekeeping or administration of VDAs or of instruments enabling control over them; (5) participation in and provision of financial services related to an issuer's offer or sale of a VDA.
Registration steps: incorporate/identify the entity → appoint a Principal Officer and a Designated Director → register on FIU-IND's FINGate portal as a Reporting Entity (category VDA SP) → obtain the reporting-entity identifier → file reports through FINnet.
Offshore reach: an entity serving Indian users must register even without a place of business in India. In December 2023 FIU issued compliance show-cause notices to nine offshore platforms and their URLs were blocked; Binance and KuCoin subsequently registered and paid monetary penalties. A few dozen VDA SPs (around 50 by 2025–26) are registered; FIU updates the list.
Core duties: KYC and customer due diligence under the PMLA and the Prevention of Money-laundering (Maintenance of Records) Rules, 2005; beneficial-ownership identification; sanctions/UNSC list screening; record retention for five years; an internal AML/CFT policy and employee training; originator and beneficiary information to accompany VDA transfers (the FATF "travel rule" approach reflected in FIU guidance).
Reports to FIU: STR (suspicious transaction, no threshold, within 7 working days of conclusion of suspicion), CTR (cash transactions above ₹10 lakh in a month), CCR (counterfeit currency), NTR (non-profit receipts) and CBWTR (cross-border wire transfers above ₹5 lakh equivalent).
Penalties: FIU-IND can issue directions and impose monetary penalties on a defaulting reporting entity under the PMLA; MeitY blocking of URLs is used against unregistered offshore platforms.

GST, FEMA and the wider regulatory position

GST: an exchange's commission, brokerage, listing and platform fees are a supply of services taxed at 18% (slabs since 22 September 2025 are 5%, 18% and 40%). Services from an offshore exchange to an Indian recipient attract GST under reverse charge / the OIDAR route. The GST treatment of the crypto-asset itself (goods, service or neither) has not been expressly notified and is disputed — say so rather than asserting a rate.
FEMA: crypto-assets are not a recognised instrument under FEMA; there is no notified route for buying them under the Liberalised Remittance Scheme, and banks generally decline such remittances.
No prohibition, no legal tender: the RBI's 2018 banking-access circular was struck down by the Supreme Court in Internet and Mobile Association of India v. RBI (March 2020). The 2019 draft banning Bill was never introduced. RBI continues to caution against crypto and promotes the digital rupee (e₹) pilot instead; a government discussion paper on a crypto-asset framework has been under consideration.
Practical effect: taxation (Income-tax Act) and AML (PMLA/FIU) are the two operative pillars; there is no investor-protection or prudential regulator for crypto-assets, which is why advertisements must carry risk disclaimers under industry/ASCI guidelines.

Key points

VDA - cryptographically generated code/token/number, not Indian or foreign currency, having inherent value, traded electronically or held as a store of value.
Not a VDA - Indian and foreign currency, the RBI digital rupee (e₹), gift cards, vouchers, mileage points, platform subscriptions.
NFT - notified as a VDA, except where its transfer also transfers ownership of an underlying tangible asset.
Flat 30% - on income from transfer of a VDA (former section 115BBH), plus surcharge and 4% cess; holding period irrelevant.
Only cost of acquisition - deductible; no expenses, no indexation, no Chapter VI-A-type deductions against VDA income.
No set-off, no carry forward - a VDA loss dies in the year; it cannot even offset gain on another VDA.
Mining - cost of acquisition is nil, so the whole consideration is taxed; rig and electricity costs are not allowed.
1% TDS - on gross consideration (former section 194S), payable even on a loss; thresholds ₹50,000 (specified person) / ₹10,000 (others) per year.
Forms - 26QE and 16E for specified persons; 26Q and 16A for others; Schedule VDA in the income-tax return.
Crypto-to-crypto swap - both legs are transfers; TDS applies to each side, usually deducted in kind by the exchange.
Gift of VDA - taxed in the recipient's hands as income from other sources above ₹50,000 aggregate; that value becomes the cost.
CARF reporting - prescribed crypto-asset transaction statements from 1 April 2026, for automatic international exchange of information.
PMLA notification, 7 March 2023 - VDA activities became a designated business, so a VDA SP is a reporting entity.
FIU-IND registration - Principal Officer and Designated Director, FINGate registration, FINnet reporting; applies to offshore platforms serving Indian users.
Reports - STR (7 working days), CTR (cash above ₹10 lakh/month), CCR, NTR, CBWTR (above ₹5 lakh equivalent); records kept 5 years.
GST - 18% on exchange commission and platform fees; treatment of the asset itself not expressly notified.
IAMAI v. RBI (2020) - struck down the RBI banking ban; crypto is taxed and AML-regulated, not prohibited and not legal tender.
Effective maximum rate - 30% × 1.25 surcharge × 1.04 cess = 39% for the highest slab under the current regime.

Formulas and examples

VDA taxable income = Consideration on transfer − Cost of acquisition (₹; no other deduction)
Tax on VDA income = 0.30 × VDA income × (1 + surcharge rate) × 1.04
TDS under the VDA provision = 0.01 × gross consideration (₹), once the annual threshold is crossed
Net tax payable = Tax on VDA income − TDS credit − advance tax paid
Effective rate = 30% × (1 + s) × 1.04, where s = surcharge rate (0, 0.10, 0.15 or 0.25)

Example 1 — straight sale. Ms Nair buys Bitcoin for ₹8,00,000 and sells it on a registered Indian exchange for ₹12,50,000. She has no other VDA trade and salary income of ₹14 lakh (no surcharge).

VDA income = 12,50,000 − 8,00,000 = ₹4,50,000
Tax = 30% × 4,50,000 = 1,35,000; cess 4% = 5,400 → ₹1,40,400
TDS = 1% × 12,50,000 = ₹12,500 (exchange deducts)
Balance payable with the return = 1,40,400 − 12,500 = ₹1,27,900

Example 2 — loss cannot be set off. In the same year Mr Rao has a gain of ₹2,00,000 on Ether and a loss of ₹1,50,000 on another token.

Taxable VDA income = ₹2,00,000 (the ₹1,50,000 loss is ignored and lapses)
Tax = 30% × 2,00,000 × 1.04 = ₹62,400
Had set-off been allowed, income would be ₹50,000 and tax ₹15,600 — so the disallowance costs him ₹46,800.

Example 3 — TDS threshold for a specified person. A salaried individual (no business income) buys VDAs off-exchange twice in the year, paying ₹45,000 in July and ₹20,000 in November. The ₹50,000 threshold applies because the payer — the person liable to deduct — is a specified person.

July: aggregate ₹45,000 ≤ ₹50,000 → no deduction
November: aggregate becomes ₹65,000, crossing the limit → deduct 1% on the ₹20,000 payment = ₹200
Being the deductor, he files Form 26QE within 30 days of the end of November and issues Form 16E to the seller.

Example 4 — crypto-to-crypto swap. Ms Shah swaps a token bought for ₹60,000 for Ether worth ₹1,00,000.

She is a seller of the token: gain = 1,00,000 − 60,000 = ₹40,000 → tax = 30% × 40,000 × 1.04 = ₹12,480
She is also a buyer of Ether, and the counterparty is a seller — both legs attract 1% TDS of ₹1,000 each, which the exchange withholds in kind.
Her cost of acquisition of the Ether going forward is ₹1,00,000.

Example 5 — mining, and the high-surcharge case. A miner sells mined coins for ₹30,00,000, having spent ₹9,00,000 on rigs and electricity. His total income puts him at the 25% surcharge level.

Cost of acquisition = nil; the ₹9,00,000 is not deductible → VDA income = ₹30,00,000
Tax = 30% × 30,00,000 = 9,00,000; surcharge 25% = 2,25,000; subtotal 11,25,000; cess 4% = 45,000 → ₹11,70,000
Effective rate = 30% × 1.25 × 1.04 = 39%; TDS already collected = 1% × 30,00,000 = ₹30,000.

Feature	Listed equity shares	Virtual digital asset
Rate	20% short-term / 12.5% long-term above ₹1.25 lakh (post-July 2024 rates)	Flat 30% regardless of holding period
Expenses	Transfer expenses allowed	Only cost of acquisition
Loss set-off	Allowed within capital gains, carry forward 8 years	Not allowed at all
TDS	None on the sale by a resident	1% on gross consideration
Regulator	SEBI (investor protection)	FIU-IND for AML only; no market regulator

Report to FIU-IND	Trigger	Deadline
STR	Suspicious transaction or attempt	7 working days of forming suspicion
CTR	Cash transactions above ₹10 lakh in a month	15th of the following month
CBWTR	Cross-border wire transfer above ₹5 lakh equivalent	15th of the following month
CCR	Forged or counterfeit currency	15th of the following month

Where it is used

Crypto exchanges and brokers (CoinDCX, CoinSwitch Kuber, ZebPay, WazirX): TDS engines, Form 26Q/26QE compliance, Schedule VDA statements for users, KYC and AML onboarding teams.
AML and compliance desks in banks and NBFCs: screening accounts of VDA SPs, transaction monitoring, STR filing, PMLA record-keeping — the same reporting-entity framework as for banks.
Tax and audit practice (Big-4, mid-tier firms, independent CAs): computing VDA income, TDS defaults, Schedule FA and Black Money Act exposure on offshore wallets, GST on exchange fees.
RegTech and fintech product roles: building CARF/FINnet reporting pipelines, travel-rule messaging, wallet-screening integrations.
Enforcement and investigation: Income-tax Department survey teams, Enforcement Directorate PMLA cases, and GST intelligence actions on exchanges.
Corporate treasury and start-up advisory: structuring token issuance, employee token grants and Web3 payments where the 30%/1% regime and FEMA silence drive the design.

Interview questions

Q: What exactly is a virtual digital asset under Indian income-tax law? A: Any cryptographically generated information, code, number or token — other than Indian or foreign currency — with inherent value, traded or transferred electronically or held as a store of value or unit of account; notified NFTs are included, and the RBI's digital rupee, gift cards, vouchers and mileage points are excluded.
Q: At what rate is crypto gain taxed, and what can be deducted? A: A flat 30% plus surcharge and 4% cess, with only the cost of acquisition deductible — no expenses, no indexation, no slab benefit.
Q: Can a loss on one coin be set off against a gain on another? A: No. A VDA loss cannot be set off against any income, including other VDA gains, and cannot be carried forward.
Q: Is TDS payable when a sale is at a loss? A: Yes — the 1% deduction is on the gross consideration, not on profit, so it applies even when the seller loses money; the credit is claimed in the return and may be refunded.
Q: What are the TDS thresholds and which form reports it? A: ₹50,000 a year for a specified person (individual/HUF without business income or within the turnover limits) and ₹10,000 for others; specified persons use Form 26QE with Form 16E, others Form 26Q with Form 16A.
Q: How is a crypto-to-crypto swap treated? A: As two transfers — each party is a seller, so each leg is taxable at 30% on the INR value less cost, and 1% TDS applies to each leg, usually withheld in kind by the exchange.
Q: How is a mined coin taxed? A: Cost of acquisition is nil, so the entire sale consideration is taxed at 30%; mining hardware and electricity are not deductible.
Q: Why must a crypto exchange register with FIU-IND? A: The March 2023 PMLA notification made VDA activities a designated business, so an exchange is a reporting entity and must register, run KYC, keep records for five years and file STRs, CTRs and other reports.
Q: Does an offshore exchange with no office in India need to register? A: Yes, if it serves Indian users; in December 2023 FIU issued compliance notices to nine offshore platforms, their URLs were blocked, and some registered later and paid penalties.
Q: Is crypto legal in India? A: It is neither legal tender nor prohibited — the Supreme Court struck down the RBI's banking restriction in IAMAI v. RBI (2020); crypto is taxed under the income-tax law and regulated for AML under the PMLA, but has no market regulator.
Q: What is CARF and why does it matter to an Indian investor? A: The OECD Crypto-Asset Reporting Framework; prescribed Indian reporting entities must file crypto-asset transaction statements from 1 April 2026 and jurisdictions will exchange this data automatically, so offshore holdings become visible and must also appear in Schedule FA.
Q: What is the GST position on crypto? A: Exchange commission and platform fees are services taxed at 18%; the treatment of the crypto-asset itself has not been expressly notified and remains contested, so a confident rate should not be quoted.

Common mistakes

Treating crypto gain as ordinary capital gain — applying slab rates, indexation, the long-term concession or set-off against capital losses.
Deducting brokerage, electricity, mining rig cost, internet or advisory fees against VDA income; only the cost of acquisition is allowed.
Computing the 1% TDS on the profit instead of the gross consideration, or assuming no TDS arises on a loss-making sale.
Confusing the two thresholds (₹50,000 vs ₹10,000) or forgetting that they are annual aggregates, not per transaction.
Ignoring the swap: thinking a coin-to-coin trade is tax-free because no rupees were received.
Saying crypto is "banned in India" or, at the other extreme, that it is legal tender — the digital rupee is legal tender, crypto-assets are not.
Assuming FIU-IND registration is voluntary or only for Indian-incorporated exchanges, and confusing the AML registration with a SEBI- or RBI-style licence.