Understanding Crypto Regulation and Taxation in India: Key Insights from the Finance Ministry

Crypto Assets in India: Unregulated but Not Untouchable, Says Finance Minister

In a recent statement to Parliament, India’s Finance Minister has clarified that while cryptocurrencies and other virtual digital assets (VDAs) remain unregulated, investors are not beyond the reach of taxation and enforcement authorities. Minister of State for Finance Pankaj Chaudhary addressed concerns regarding the lack of regulation in the crypto sector, emphasizing that the government is actively monitoring instances of tax evasion and illegal activities linked to these assets.

Chaudhary’s remarks came in response to a Lok Sabha query, where he confirmed that the Financial Intelligence Unit–India (FIU-IND) has been tasked with overseeing the sector for anti-money laundering (AML) and combating the financing of terrorism (CFT). This regulatory framework mandates that crypto service providers register with FIU-IND and adhere to strict compliance measures, including customer due diligence and reporting suspicious activities.

The Enforcement Directorate (ED) has already taken significant action, investigating multiple crypto-related cases under the Prevention of Money Laundering Act (PMLA). To date, the ED has seized or attached proceeds of crime worth ₹4,209.74 crore, arrested 29 individuals, and filed 24 prosecution complaints, with one accused declared a fugitive economic offender.

Reporting Crypto Earnings

On the taxation front, the government has made it clear that all crypto transactions must be disclosed. The Income Tax Department is actively pursuing cases of tax evasion related to VDAs, employing strategies such as nudging taxpayers, conducting e-verifications, and executing search and seizure operations. The Central Board of Direct Taxes (CBDT) has launched the NUDGE campaign, utilizing data analytics to identify taxpayers who have engaged in crypto transactions but failed to report them.

The government also reiterated that benami and overseas crypto holdings are subject to scrutiny. The Benami Property Transactions Act applies to benami-held VDAs, while the Black Money Act governs undisclosed foreign crypto assets. Meanwhile, the Reserve Bank of India continues to warn users about the potential economic, legal, and security risks associated with VDAs, urging banks to enforce stringent KYC, AML, and CFT controls.

Understanding Crypto Taxation

In India, profits from the sale or exchange of crypto assets are taxed at a flat rate of 30%, alongside a surcharge and a 4% health and education cess. This taxation framework was established in the Union Budget 2022, when cryptocurrencies were officially classified as “Virtual Digital Assets” (VDAs). This classification encompasses popular cryptocurrencies like Bitcoin and Ethereum, as well as digital collectibles such as non-fungible tokens (NFTs).

Under Section 115BBH of the Income-tax Act, all gains from VDAs are taxed uniformly at 30%, with no differentiation between short-term and long-term holdings. Deductions are severely limited, allowing only the cost of acquisition to be offset against gains, while expenses like transaction fees and mining costs are not permitted.

To enhance compliance, a 1% Tax Deducted at Source (TDS) has been in effect since July 1, 2022, for every transfer of VDAs. The Union Budget 2025 further reinforced this provision, mandating crypto exchanges and intermediaries to report transactions to tax authorities starting from FY 2025–26.

Additionally, an 18% Goods and Services Tax (GST) on crypto trading and service fees was introduced on July 7, 2025, compounding the financial burden on traders and reducing net trading margins.

As the landscape of digital assets continues to evolve, the Indian government is making it clear that while the crypto sector may lack formal regulation, it is far from a lawless frontier. Investors are urged to stay informed and compliant to navigate the complexities of this burgeoning market.