How to Calculate Tax on Cryptocurrency in India?

Presently, crypto is blowing up in India. Not just in metros but even in tier-2 cities, first-time investors are surging. But with this rise comes a complexity: taxes. However, the rules are not intuitive. But they are rigid and are fast-changing.

So, if you are wondering how to calculate tax on cryptocurrency in India, you are not alone. Traders, long-term holders, even freelancers getting paid in crypto, and everyone else is asking the same thing.

Hence, if you are serious about crypto, you must be serious about tax. Therefore, read on to know how to calculate tax on cryptocurrency in India.

How Crypto Taxation Works in India? – A Background

The following are the ways cryptocurrency taxation works in India:

1. Virtual Digital Asset (VDA)

Under Indian law, crypto is not “currency.” Rather, it is a Virtual Digital Asset. The term was introduced in Budget 2022.

Basically, VDAs include cryptocurrencies, NFTs, and tokens. It consists of any digital asset that is generated and traded cryptographically. It does not include gift cards and loyalty points, but cryptocurrency and its cousins.

Why does this matter? Because the term VDA is what the tax laws hinge on. If it is a VDA, it is taxable. It is that simple!

2. Key Legislative Changes and Tax Regime Timeline

The real shift came in Budget 2022. That is when the government said that if you make crypto gains, you have to pay a flat 30% tax. Also, there are no deductions or loss offsets. Plus, you have to pay 1% TDS on every sale or transfer. This has become applicable since July 1, 2022.

Then came Budget 2024/2025 with more reporting rules. Now, exchanges had to register with FIU-IND. Then GST started creeping in, especially for platforms that charge fees. As a result, the compliance net got tighter.

3. Overview of the Tax Regime

The following are the major points of the tax regime:

• Flat 30% tax on profits from VDAs.
• 1% TDS on sale consideration (Section 194S).
• No deductions allowed except the cost of acquisition.
• No loss set-off, even if you lose money, you cannot adjust it against other gains.
• GST may apply to exchange fees or services.

Although these tax provisions seem hard, they clarify things better.

When Does Crypto Tax Apply? – Taxable Events

Crypto tax is not just about selling. Rather, it is about transferring.

• If you sell crypto for INR, it is taxable.
• Trading one crypto for another is taxable.
• Spending crypto to buy goods/services is taxable.
• Receiving crypto as a gift, an airdrop, mining, or staking rewards is taxable. It will be taxed either as capital gains or other income.

What is not taxable?

• Just holding crypto is not taxable.
• Wallet-to-wallet transfers are not taxable (if no sale is involved).
• Unrealised gains are not taxable. In fact, if you have not sold, you do not pay.

But the moment you transfer or convert, tax kicks in.

How to Calculate Tax on Crypto? – Essential Steps to Follow

The following are the steps you must take to calculate tax on crypto:

1. Determine Cost of Acquisition

This is the price you paid to buy the crypto. Hence, there are no transaction, gas, or platform charges. All you have to pay is the purchase price. If you received crypto as payment or a reward, make sure it is of fair market value at the time of receipt.

2. Determine Sale/Transfer Value

If you sold crypto for INR, that is your sale value. If you traded crypto for another crypto, use the asset’s market value.

3. Calculate the Profit or Gain

To calculate profit or gain, use this formula:

Profit = Sale Value – Cost of Acquisition

Example: You buy ETH for ₹2,00,000. Then, sell it for ₹3,00,000. This will make you a profit of ₹1,00,000.

4. Apply the Tax Rate

You have to pay a flat 30% tax on that ₹1,00,000. So, it means you must pay ₹30,000 in tax. Also, add 4% cess. Then, the total tax you pay amounts to ₹31,200.

5. Account for TDS Already Deducted

If you sold crypto on an exchange, they probably deducted 1% TDS. That is ₹3,000 on a sale of ₹3,00,000. However, you will be able to adjust this when filing your return.

7. Special Cases

The following are some special cases you must be aware of:

• Gifts/Airdrops: These are taxed in the hands of the receiver. It is usually under “Income from Other Sources.”
• Mining/Staking Rewards: These might be treated as business income if frequent, else capital gains.
• Using crypto to buy other things: These are treated as sales, and hence are taxable.

Compliance and Filing Requirements

The following are some compliance and filing requirements you must be aware of:

1. Reporting in Income Tax Return (ITR)

Crypto gains go under Schedule VDA. Therefore, use ITR-2 or ITR-3, depending on your income type.

2. When to Pay Tax / Deadlines

The financial year extends from April 1 to March 31. Hence, file by July 31 (unless extended). However, advance tax may apply if gains are high.

3. Documentation and Record-Keeping

The following are the documents you must always keep ready:

• Exchange trade history
• Wallet logs
• Screenshots of acquisition
• TDS certificates

4. TDS Compliance

Exchanges deduct TDS. If you are doing peer-to-peer trades, you may be responsible for them. Make sure to file Form 26AS to check TDS credits.

5. Penalties and Consequences

For non-reporting, you might face:

• Fines
• Interest
• Even jail (in extreme cases)

Hence, do not risk it.

Strategic Tips for Investors and Traders

If you are an investor or a trader, follow these strategic tips while calculating tax on cryptocurrency:

• Always keep records ready.
• If you trade smart, you will have fewer transactions. This means less TDS drag.
• Make sure to work with crypto tax software. Also, some exchanges come with built-in calculators.
• When dealing with DeFi, staking, NFTs, or overseas trades, seek expert help.
• Always stay updated, as tax rules evolve with each budget season.

Future Outlook & Emerging Trends

To be honest, India’s crypto tax regime is still young. Hence, expect the following trends:

• Stricter reporting (maybe real-time).
• Introduction to global frameworks like OECD’s CARF.
• Loss offset rules.
• More GST clarity, especially for service providers.

If you are planning to offer crypto compliance services later, this is your window. This is because the niche is growing.

Start Calculating Now!

So, how to calculate tax on cryptocurrency in India? It is not rocket science. However, you cannot afford to be casual either. In fact, you must know what counts as a taxable event, how to compute gains, and how to file it correctly. Basically, the formula is simple, while the compliance is not.

Hence, audit your portfolio, use the formula, and keep records. However, if it gets complex, call a tax professional.

Frequently Asked Questions (FAQs)

The following are some of the most common questions you might have if you are calculating tax on cryptocurrency in India: