In India, the taxation of cryptocurrency and other virtual digital assets (VDAs) has been a contentious issue for the past few years. With the rapid growth of innovation, retail investor participation and institutional investment, the pressure on the Indian government to develop clear and enforceable tax rules has been increasing. Recent developments have arisen from the Income Tax Act 2025, which is a complete overhaul of the direct tax laws in India and will be effective from April 1, 2026.
In addition to the Income Tax Act 2025, the Union Budget of 2026 has introduced stricter compliance and reporting requirements for cryptocurrency transactions, including new penalties. These developments indicate a major shift in the taxation of crypto assets in India, from a tax-based regime to a more compliance-focused regime.
This article delves into these matters in more detail. We will analyse the new tax system, crypto regulations, the implementation timeline, and the implications of these changes for individual investors, exchanges, and service providers. We will also discuss how these changes are part of a global trend in the taxation of digital assets.
Background: India’s Crypto Tax Regime to Date
Before diving into the recent changes, it is essential to grasp the nature of the crypto tax regime in India to date.
Since Budget 2022, the taxation structure in India has been a flat 30% rate on all gains from virtual digital assets (VDAs), including cryptocurrencies, non-fungible tokens (NFTs), and other tokenized assets. Additionally, a 1% Tax Deducted at Source (TDS) applies to all cryptocurrency transactions under Section 194S. No deductions are allowed except for the cost of acquisition. Offsetting losses against other capital assets is prohibited.
The aim of this taxation structure from the outset has been to establish a straightforward and easy-to-predict taxation system, albeit a harsh one, to maximize tax revenue and curb speculative activity in the absence of a comprehensive regulatory framework for digital assets. Nevertheless, this tax structure has also faced criticism from the crypto community for its rigidity and high cost.
The principal statutory provision on crypto taxation is Section 115BBH of the Income-tax Act, which focuses on VDA gains without distinction between short-term and long-term assets, thereby imposing a relatively high tax rate compared to other types of assets.
The Income Tax Act, 2025: A New Tax Architecture
The Income Tax Act 2025 is a major reform initiative aimed at consolidating and updating the direct tax statute in India. It was enacted by the Indian Parliament in August 2025 and is scheduled to come into force on April 1, 2026, thereby replacing the Income-tax Act, 1961, which is much older.
Simplification and Structural Reform
Simplification and structural reform of the direct tax system in India is one of the main aims of the Act. This includes the introduction of a new concept of Tax Year, replacing the earlier concepts of Assessment Year and Financial Year.
The Act further introduces a new definition of Virtual Digital Assets, widening the scope to include any digital asset that has value in digital form and is based on cryptographic ledgers, thus including almost all forms of mainstream cryptocurrencies.
This is significant because it provides a more concrete legal foundation for taxing VDAs, thereby replacing the earlier complex system of laws that were not originally intended to cover digital assets.
Budget 2026 and Crypto-Specific Amendments
The Union Budget 2026 brought about important enforcement and compliance improvements specific to crypto assets, reporting, and penalties, while largely maintaining the existing tax rate structure.
Enhanced Reporting and Penalty Regime
Although the crypto industry had hoped for tax rate reductions, the Finance Bill of 2026 maintained the flat 30% tax rate on crypto gains and 1% TDS on transactions. However, it introduced important reporting requirements and penalties that are expected to enhance compliance.
From April 1, 2026, cryptocurrency exchanges, intermediaries, and wallet services will be obligated to provide the tax authorities with more frequent and precise reports of their transactions. Failure to do so will result in penalties, including:
- Daily penalties for failing to file required transaction reports, and
- Lump-sum penalties for misreporting or failing to file accurate reports.
These developments signal a new approach to enforcement that prioritizes compliance to fill gaps in tax reporting data and ensure that the government can effectively trace crypto income. Although the penalty provisions were widely welcomed in the tax community, the crypto industry was disappointed that the Finance Bill of 2026 did not provide an opportunity to develop a more complex or pro-growth tax structure.
Implementation Schedule and Transitional Matters
Effective Date of the New Income Tax Act
The Income-tax Act, 2025, will be effective from April 1, 2026, and will create a new legal framework for income tax in India.
Phased Implementation of Penalty Provisions
According to official explanations, some provisions relating to penalties in the amended Act will be applicable from April 1, 2027, especially with regard to draft assessment or penalty actions initiated after that date. This includes provisions for composite assessments and penalties for sections that have been modified or added in the new Act.
The gradual implementation of the new law is intended to allow taxpayers, intermediaries, and authorities time to improve systems and infrastructure before the law takes full effect.
What Hasn’t Changed: The Core Crypto Tax Rules
Despite the changes in the structure of the tax law and the implementation of new compliance requirements, the following essential aspects remain the same:
Tax Rate and TDS
- 30% flat tax on gains from VDAs
- 1% TDS on crypto transactions
- No deduction for losses or other expenses
These rules remain valid under the new system, and the original intention of the government to consider crypto gains as speculative income and collect taxes on them remains the same.
Practical Implications for Crypto Investors
The increased reporting obligations and threat of penalties are perhaps the most important developments for investors and exchanges.
Increased Transparency and Data Reporting
Exchanges and other intermediaries are now required to develop infrastructure that enables the generation of reliable transaction reports on request. This is expected to involve:
- Real-time monitoring of transactions,
- Harmonized reporting formats, and
- Integration with tax information systems.
These provisions reflect the international trend towards increased transparency and international exchange of information. As reported, India is set to initiate cross-border crypto data exchange from April 1, 2027, in line with international cooperation efforts such as the fight against money laundering and tax evasion.
Cross-Border Transactions and International Reporting
A major forward-looking feature of the revised framework is India’s disposition to align with global efforts towards cross-border crypto data exchange. The groundwork laid in the Budget suggests that India is preparing to integrate crypto transactions into international information-sharing mechanisms.
That is, this has implications for:
- Indian residents trading on offshore exchanges
- Foreign platforms servicing Indian users, and
- Reporting of crypto assets held outside India.
As global crypto reporting standards evolve, the Indian taxpayer should expect a reduction in the scope of regulatory arbitrage.
Compliance and Enforcement Risk
The new system of penalties has also brought in a compliance risk profile, which may significantly impact service providers as well as users.
Exchange and Intermediary Liability
Failure to provide accurate and timely information will result in penalties that will be incurred daily, thus creating business risk for crypto platforms beyond tax risks.
Investor Reporting Obligations
Private taxpayers should also be ready for increased scrutiny. Unreported crypto assets discovered during tax searches will be treated as if they were discovered with tax, penalties, and surcharges that effectively reduce the value of the asset to zero.
Enforcement and the Broader Policy Context
This move by India has come in the larger backdrop of a cautious regulatory regime. Tax authorities in India have warned about the risks associated with cryptocurrency, citing anonymous transfers, offshore platforms, and their derivatives, which do not fall within any standard category.
Unlike other nations that are increasingly adopting the legislative path toward fully fledged regulation of cryptocurrencies, India is maintaining a hybrid approach of heavy taxation coupled with reporting and penalties, but not through any specific enactments on the issue.
Lessons from Global Policy Trends
India’s tax regulations are indicative of broader regulatory standards observed in the rest of the world. Many countries are tightening their regulations on crypto reporting, with the influence of organizations such as the OECD and FATF in the background.
Initiatives on the implementation of reporting requirements, non-compliance penalties, and informal practices on information exchange between borders are becoming increasingly common in the implementation of crypto taxes around the globe. There is an indication that India is embracing reporting standards as well as preparing itself to accommodate non-domestic data exchange.
Compliance Strategy for Taxpayers
In view of the proposed revisions, crypto taxpayers should note:
- Maintaining detailed transaction records,
- Reconciling exchange statements with tax filings,
- Ensuring timely and accurate disclosures, and
- Consulting professionals for complicated transactions.
Proactive compliance will likely be far less costly than post-facto dispute resolution.
Implications for Institutional Adoption
Indeed, although this reinforced compliance approach may deter retail-sector participation, it could, ironically, spur institutional-sector discipline. Indeed, reporting clarity provided by regulatory bodies may render crypto investments more acceptable to institutional investors operating under strict compliance disciplinary structures.
Nevertheless, it is worth noting that the lack of tax rationalization acts as a limitation for long-term institutional use.
What’s Next? Outlook and Challenges
Looking ahead, several questions remain:
Will Tax Rates Be Reformed?
While the industry lobbies for a regime of rationalized tax rates/loss offsets, the 2026 Budget retained the status quo. The upcoming budgets could consider the issue if the compliance measures hinder the market momentum.
Broader Crypto Regulation
However, the tax reforms do not encompass the full scope of regulation across market conduct, custody, securities, and consumer protection.
Technology and Compliance Infrastructure
Consequently, it is important to consider how reporting will play a role in enforcement, with potential collaborations between cryptocurrency platforms and authorities in building reporting systems capable of handling massive datasets.
The implementation of the amended Income Tax Act, 2025 and the accompanying compliance enhancements introduced in Budget 2026 mark a significant evolution in India’s treatment of cryptocurrency. While the underlying tax rates remain unchanged, the shift toward comprehensive reporting, stringent penalties, and cross-border data cooperation signals an enforcement era in which compliance infrastructure and transparency matter as much as statutory tax rates. For investors and service providers alike, understanding these changes and preparing for the compliance landscape will be critical to navigating India’s emerging crypto tax regime.
Frequently Asked Questions (FAQs)
1) What are the “Virtual Digital Assets” under Indian Tax Law?
Virtual digital assets include virtual currencies like cryptocurrencies and non-fungible tokens, as well as everything else that utilizes “cryptographic techniques or distributed ledger technology for the representation of value.” This definition is quite broad to cover the entire gamut of crypto-instruments existing currently and in the future.
2) Is the present tax rate for crypto assets changed in the revised Income Tax Act?
No. The flat 30% rate on gains from VDAs is unaffected. The new framework, as amended, only affects compliance, reporting, and enforcement. Tax rates remain as before.
3) Does the 1% TDS on crypto transactions remain applicable?
Yes. The tax deducted at source (TDS) rate of 1% continues to apply to all transactions involving cryptocurrencies. It is deducted at the time of transfer and is required to create a trail of transactions, which the tax authorities can follow.
4) Can losses from cryptocurrency exchanges be deducted against other income?
No. Losses arising from VDAs cannot be set off against any other income. Moreover, they cannot be set off or carried forward. Only the cost of acquisition is allowed as a deduction.
5) What are the new reporting requirements introduced by the amendments?
The revised framework provides improved reporting requirements, especially for crypto exchanges or intermediaries. These need to report detailed transactions to tax authorities. Detailed transactions would include user-level transactions in a prescribed form.
6) Is an individual taxpayer required to make additional disclosures?
Yes. There may be a requirement to disclose details concerning the acquisition, transfers, and considerations regarding crypto assets, particularly if crypto income is deemed material.
7) Will offshore cryptocurrency transactions be included in the new regime?
Yes. It appears to reflect a trend toward greater visibility of these offshore crypto assets, particularly in light of forthcoming information-sharing agreements. Indian residents transacting on foreign exchanges.
8) Is the new framework legalizing cryptocurrencies in India?
Not at all. The treatment of crypto assets in tax law does not equate to them being legally recognized as a legitimate tender or any of the above terms, for that matter.
9) How does this affect enforcement and tax investigations?
Crypto assets are clearly included in the enforcement of tax laws. The assets remain liable for tax, penalty, and interest in the event of undisclosed assets found during searches and assessments. There are very few exceptions.
10) What can taxpayers do to get ready for the change?
Taxpayers should keep detailed transaction records, reconcile exchange statements, prudently disclose information in tax returns, and seek advice for complex or border-crossing transactions.
