1. Crypto is legal to trade, but not recognised as legal tender

In India, buying, selling, and holding cryptocurrencies is legal. The government has not banned trading, and Indian exchanges operate under regulatory oversight. However, crypto is not recognised as legal tender, meaning it cannot be used like official currency to settle debts or make mandatory payments. The Reserve Bank of India continues to caution users about risks, but the Supreme Court’s 2020 verdict ensures banks can provide services to crypto platforms.

2. Every crypto profit is taxed at 30%

India has one of the strictest tax regimes for digital assets. Under the Virtual Digital Asset (VDA) rules:

• 30% tax applies to all profits from selling or transferring crypto.
• No distinction between short-term and long-term gains.
• No deductions allowed except the original purchase price.

If you make a profit, the tax is mandatory—regardless of where the exchange is registered.

3. 1% TDS is deducted on every trade

Since July 2022, exchanges must deduct 1% TDS (Tax Deducted at Source) on trades above ₹10,000 per year.

• The TDS applies even if the trade is at a loss.
• It is collected and deposited with the government.
• Investors can claim credit for the deducted TDS when filing returns.

This rule affects high-frequency traders the most, as it reduces liquidity on each trade.

4. Losses cannot be set off or carried forward

Crypto losses in India come with strict limitations:

• You cannot set off crypto losses against income from stocks, property, or business.
• You cannot carry forward losses to future years.
• Losses cannot be used to reduce your tax liability in any way.

5. Choose an FIU-compliant exchange

Since December 2023, the Ministry of Finance requires all exchanges servicing Indian users to register with the Financial Intelligence Unit (FIU-IND).

Before investing, ensure the exchange:

• Is registered with FIU-IND
• Follows KYC/AML rules
• Has transparent withdrawal and compliance processes

Unregistered offshore exchanges may face restrictions or enforcement action.

6. Understand the volatility and market risks

Crypto is known for significant price fluctuations. Indian investors should be aware of:

• High intraday volatility
• Liquidity risks during sudden market moves
• Project-specific risks such as hacks or abandonment
• Exchange-level risks like downtime or withdrawal delays

7. Watch out for scams, phishing, and fake schemes

Crypto scams are common, especially on social media. Be cautious of:

• Fake “guaranteed return” schemes
• Impersonation scams using celebrity names
• Phishing links pretending to be major exchanges
• High-yield cloud mining or staking frauds

8. Be prepared for evolving regulations

India does not yet have a dedicated crypto law. Regulation is evolving, and future changes may include:

• Revised tax rules
• Stricter KYC/AML checks
• Additional compliance for exchanges
• Potential global frameworks via G20 discussions

9. Consider wallet safety and self-custody options

While exchanges offer convenience, keeping large amounts of crypto in hot wallets may increase risk. Experienced users often consider:

• Hardware wallets
• Private keys management
• Secure seed phrase storage

10. Do not invest more than you can afford to lose

Crypto remains a high-risk asset class. Indian investors should ensure:

• Investments align with their risk tolerance
• They avoid borrowing money to invest
• They maintain a diversified portfolio
• They keep proper records for tax compliance

Crypto investing in India is legal and accessible but comes with strict taxation and a constantly changing regulatory environment. Understanding compliance, tax obligations, exchange safety, and risks is essential before entering the market.

Disclaimer: This article is for general information only and does not constitute financial or tax advice.

Crypto trading is legal, but not recognised as currency

In India, buying, selling, and holding cryptocurrencies such as Bitcoin, Ethereum, or stablecoins is legal. The government has not banned crypto trading, and major exchanges continue to operate in compliance with Indian law.

However, crypto is not considered legal tender. This means it cannot be used as official currency to settle debts or make compulsory payments. The Reserve Bank of India (RBI) has repeatedly cautioned users about risks but has not imposed any prohibition since the Supreme Court overturned the RBI banking ban in March 2020.

Regulatory environment: No dedicated crypto law yet

India does not yet have a specific law that governs cryptocurrency. Instead, various government bodies have issued guidelines and taken regulatory steps:

1. RBI’s stance

• The RBI has expressed concerns about financial stability, money laundering, and investor protection.
• Banks are allowed to offer services to crypto users as long as they perform proper due diligence.
• RBI continues to push for strong regulations but has not banned crypto.

2. Ministry of Finance

• The government has introduced Virtual Digital Asset (VDA) classification under the Income Tax Act to regulate taxation.
• Discussions on a future regulatory framework (or crypto bill) have been ongoing, but no legislation has been passed yet.

3. FIU registration for exchanges

• In December 2023, major crypto exchanges operating in India were required to register with the Financial Intelligence Unit (FIU-IND).
• Exchanges must comply with anti-money-laundering rules and report suspicious transactions.

How cryptocurrencies are taxed in India

Taxation is the most clearly defined part of India’s crypto policy. Since 1 April 2022, cryptocurrencies fall under the category of Virtual Digital Assets (VDAs) with strict tax rules.

1. 30% tax on profits

• All gains from the sale or transfer of cryptocurrencies are taxed at 30%.
• This applies irrespective of whether the gain is short-term or long-term.
• No deduction is allowed for expenses except the cost of acquisition.

2. 1% TDS on every trade

• A 1% Tax Deducted at Source (TDS) applies to every crypto trade above ₹10,000 in a year on Indian exchanges.
• This TDS is collected by exchanges and deposited with the government.
• Traders can claim credit for this TDS while filing their income tax returns.

3. Crypto gifts are taxable

• Gifts of crypto are taxable in the hands of the recipient if the value exceeds ₹50,000, unless exempt under relatives’ category.

4. Losses cannot be set off

• Losses from crypto cannot be:
  • set off against other income, or
  • carried forward to future years. This is the strictest part of the tax regime.

GST implications

While there is no separate GST law for crypto:

• Crypto exchanges pay 18% GST on their service fees.
• Traders do not pay GST on the crypto itself.
• The government may introduce additional GST classifications in the future.

What the future may hold

India is moving towards a regulated crypto ecosystem:

• Discussions on a global regulatory framework continue under the G20 agenda.
• Experts expect clearer rules once the government finalises its stance.
• Meanwhile, the RBI is developing the Digital Rupee (CBDC) as an official alternative.

Crypto trading in India is legal but tightly taxed and cautiously monitored. Investors can trade freely through compliant exchanges, but must follow the 30% tax rule and 1% TDS requirements. While a dedicated crypto law is still awaited, the existing framework ensures that trading remains allowed, regulated, and taxable.

Disclaimer: This article is for general information only and does not constitute financial or tax advice.