This content is published with the kind permission of the author, Ravi Raghavan of Majmudar & Partners.
Introduction
Before answering the specific questions, it is instructive to note a few features of the Indian tax system and its approach to cryptoassets.
In the Union Budget 2022, the Indian Finance Minister announced that the magnitude and frequency of transactions in virtual digital assets (VDA) made it imperative to provide for a specific Indian tax regime. Thus, a new tax framework for VDAs was introduced in the Finance Bill 2022. Section 2(47A) of the Income-tax Act 1961 (IT Act) defines VDA to mean "any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically".
The Finance Bill 2025 includes proposals to amend the definition of VDA by introducing a new sub-clause (d) under Section 2(47A) to provide that, “any crypto asset being a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions, will be considered as VDA”. The amendment is proposed to be effective from 1 April 2026. With the proposed amendment, the definition of VDA is being made more specific to cover “crypto” assets based on the distributed ledger/blockchain technology, involving processes of validating/securing transactions, which are generally undertaken for mining tokens/cryptos on a distributed ledger. While the existing definition of VDA covers ‘any information, code, number or token generated through cryptographic means or otherwise’, it does not state its reliance on distributed ledger technology to validate transactions, nor uses the words “crypto assets”.
VDA include (i) a non-fungible token or any other token of a similar nature, by whatever name called; and (ii) any other digital asset, as the Central Government may, by notification in the Official Gazette specify.
The Central Board of Indian Taxes (CBDT) had issued two (2) notifications, no. 74 and 75 of 2022, which exclude the following VDAs from the definition of VDAs:
(i) gift cards or vouchers, being a record that may be used to obtain goods or services or a discount on goods or services;
(ii) mileage points, reward points, loyalty cards, being a record (a) given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional programme; (b) that may be used or redeemed only to obtain goods or services or a discount on goods or services;
(iii) subscriptions to websites or platforms or applications; and
(iv) a non-fungible token whose transfer results in the transfer of ownership of the underlying tangible asset, and the transfer of ownership of such underlying asset is legally enforceable
Income-tax:
Under the IT Act, Indian residents are subject to tax in India on their worldwide income, whereas non-residents are taxed on, inter alia, income deemed to accrue or arise in India. The IT Act has widened the scope of "deemed to accrue or arise in India" by introducing the significant economic presence (SEP) test. A non-resident is considered to have established a SEP in India if the non-resident, inter alia, enters into transactions in respect of goods, services or property with a person resident in India or is engaged in systematic and continuous soliciting of business activities from customers in India. However, non-residents who are residents of a country with which India has signed a tax treaty have the option of being taxed as per the tax treaty or the IT Act, whichever is more beneficial.
Goods and Services Tax:
India does not have a VAT regime but instead has Goods and Services Tax (GST).
In India GST is payable on:
(i) sales of goods where goods are sold within one state in India;
(ii) sales of goods where goods are transported from one state to another state;
(iii) the provision of services within one state in India; and
(iv) the provision of services from one state to another state in India.
Transactions in cryptocurrencies
Individual investors (tax resident in your jurisdiction)
1) Are individuals taxed on gains on the sale of cryptocurrencies?
Yes.
Any income arising from the transfer of VDAs will be taxable in the hands of the individuals at the rate of 30% (section 115BBH of the IT Act) (plus applicable surcharge depending on the individual tax slab rates) and an education levy at the rate of 4%). No deduction with respect to any expenditure or allowance (other than the cost of acquisition) will be available to the individual. Any loss arising from the transfer of VDAs will not be eligible for set off against any income or permitted to be carried forward for future tax assessment years.
Under the provisions of the IT Act, cryptocurrencies are considered as "property". Thus, at the time when the property is transferred by the seller, the seller must conduct a fair market valuation (FMV) of that property. Currently, there is no valuation method prescribed under the IT Act for determining the FMV of VDAs. However, press reports suggest that an internationally accepted principle of valuation may work.
With effect from 1 July 2022, section 194S of the IT Act introduced a withholding tax obligation on a person to ensure that tax is withheld at the rate of 1% at the time of payment/credit of any sum to any resident as consideration for the transfer of a VDA.
The person responsible for paying any sum to an Indian resident with respect to transfer of a VDA is required to deduct 1% tax of the said sum. Where payment is wholly or partly in kind, the person responsible for paying such consideration shall ensure that tax has been paid prior to releasing such consideration.
The threshold amount triggering tax withholding is an aggregate payment of INR 50,000 (approx. US$572) where the specified person makes payment; otherwise, it is INR 10,000 (approx. US$114) in a financial year. A specified person is an individual or a Hindu Undivided Family that satisfies the conditions prescribed for this purpose in the section.
The person withholding tax is required to furnish a quarterly statement (in Form No. 26Q) for all such transactions.
Corporate investors (tax resident of your jurisdiction)
2) Is cryptocurrency subject to yearly mark to market valuation?
No. Under the IT Act, merely holding a cryptocurrency will not be subject to yearly mark to market valuation.
3) Are corporates taxed on gains on the sale of cryptocurrencies?
Yes.
Any income arising from the transfer of VDAs will be taxable in the hands of corporate entities at the rate of 30% (section 115BBH of the IT Act) (plus applicable surcharge) and an education levy at the rate of 4%). No deduction with respect to any expenditure or allowance (other than the cost of acquisition) will be available for the corporates. Any loss arising from the transfer of VDAs will not be eligible for set off against any income or permitted to be carried forward for future tax assessment years.
Under the provisions of the IT Act, cryptocurrencies are considered as "property". Thus, at the time when the property is transferred by the seller, the seller must conduct a fair market valuation (FMV) of that property.
Currently, there is no valuation method prescribed under the IT Act for determining the FMV of VDAs. However, press reports suggest that an internationally accepted principle of valuation may work.
With effect from 1 July 2022, section 194S of the IT Act introduced a withholding tax obligation on a person to ensure that tax is withheld at the rate of 1% at the time of payment/credit of any sum to any resident as consideration for the transfer of a VDA.
The person responsible for paying any sum to an Indian resident with respect to transfer of a VDA is required to deduct 1% tax of the said sum. Where payment is wholly or partly in kind, the person responsible for paying such consideration shall ensure that tax has been paid prior to releasing such consideration.
The threshold amount triggering tax withholding is an aggregate payment of INR 50,000 (approx. US$572) where the specified person makes payment; otherwise, it is INR 10,000 (approx. US$114) in a financial year. A specified person is an individual or a Hindu Undivided Family that satisfies the conditions prescribed for this purpose in the section.
The person deducting tax is required to furnish a quarterly statement (in Form No. 26Q) for all such transactions.
Common questions around cryptocurrency and tax
4) Is payment for goods/services in cryptocurrencies a taxable event?
Yes.
The withholding tax provisions described in sections 1 and 3 equally apply where a VDA is transferred in return for goods or services by requiring the person responsible to ensure that the withholding tax has been accounted for before releasing the consideration in kind.
5) What is the tax treatment of cryptocurrencies received from mining?
Mining is a process through which individuals having high processing computers solve complex mathematical problems and verify the transactions recorded on a blockchain for which they are rewarded in cryptocurrencies. The Indian tax authorities may (if a tax audit is conducted) seek to tax such rewards based on FMV as income from other sources at the rate of 30% (plus applicable surcharge depending on the individual tax slab rates) and an education levy at the rate of 4%).
6) What is the tax treatment of cryptocurrencies received by airdrop?
An airdrop is a marketing scheme where the issuers of a new cryptocurrency directly deposit the coins in an individual's wallet to increase the flow of the new coin. The Indian tax authorities may (if a tax audit is conducted) consider the deposit of coins as a gift and tax such gifts on FMV as income from other sources at the rate of 30% (plus applicable surcharge depending on the individual tax slab rates) and an education levy at the rate of 4%).
7) What is the tax treatment of cryptocurrencies received from staking
Staking involves individuals staking or committing their existing cryptocurrency to help maintain the security of the blockchain and in return they receive a reward in form of cryptocurrency which is proportionate to their stake. The Indian tax authorities may (if a tax audit is conducted) seek to tax such rewards based on FMV as income from other sources at the rate of 30% (plus applicable surcharge depending on the individuals tax slab rates) and an education levy at the rate of 4%).
8) What is the tax treatment of lending in cryptocurrencies?
Where a person who lends VDA receives payment for such lending in the form of VDA, then such returns would be taxed based on FMV as income from other sources at the rate of 30% (plus applicable surcharge depending on individual slab rates and an education levy at the rate of 4%).
Under the IT Act, if interest payments are made on a loan then such interest income will be subject to withholding tax. The IT Act does not provide for a tax withholding rate where the lending transaction is through cryptocurrency. It is possible that the Indian tax authorities may seek to apply a withholding tax rate of 30% (plus surcharge and education levy) on lending crypto transactions.
9) What is the tax treatment of a hard fork?
Generally speaking, hard fork refers to a process by which the existing cryptocurrency goes through changes in its rules and technology and a new version of that cryptocurrency comes into existence. Individuals who choose the new version of cryptocurrency are rewarded with new coins based on whatever amount they were holding before. The Indian tax authorities may (if a tax audit is conducted) seek to tax such rewards based on FMV as income from other sources at the rate of 30% (plus applicable surcharge depending on the individuals tax slab rates) and an education levy at the rate of 4%).
10) What is the tax treatment of employee salary in cryptocurrency?
If an employee receives remuneration in cryptocurrency in a given financial year, then the employer will have the statutory obligation to withhold income tax at the rate of 30% (plus applicable surcharge depending on the individual tax slab rates) and an education levy at the rate of 4%).
The employee will not be eligible to claim any deductions on any expenditure or allowance (other than the cost of acquisition). The employer will have to issue a tax deduction certificate to the employee at the end of the financial year to enable the employee claim credit for tax withheld at source at the time of filing his/her income-tax returns.
11) How are gifts of cryptocurrency taxed, including in-game rewards?
In the event of gifting of VDAs or in-game rewards the tax payment will have to be made by the recipient of the gifts based on FMV (unless the transaction is between relatives) as income from other sources at the rate of 30% (plus applicable surcharge depending on the individual tax slab rates) and an education levy at the rate of 4%). Section 56(2)(vii) and 56(2)(x) of the IT Act that provides for gift tax on VDAs.
12) Is there a tax-deferral when exchanging cryptocurrency/assets?
Currently, there are no tax deferral regimes under the IT Act when cryptocurrency/assets are exchanged. An exchange of assets will be considered as a “transfer” under the IT Act and, tax will be applicable at the rate of 30% (plus applicable surcharge) and an education levy at the rate of 4%. A claim would need to be made to deduct the original cost of the any VDA exchanged in calculating the taxable income received on exchange, but the position in the Indian tax legislation is not clear.
13) Is there any transfer tax on the acquisition of cryptocurrencies?
Stamp duty is a tax levied by the Government on documents and instruments executed in India or which are brought into India, and each State in India has separate stamp duty rates, which apply in respect of such documents and instruments. Thus, if there is a contractual agreement between two parties in India relating to the transfer of VDAs, then stamp duty may be applicable on that document. This will have to be assessed on a case-by-case basis.
14) Is it obligatory to declare cryptocurrencies to tax authorities?
No.
Under the IT Act, if a resident is only holding cryptocurrency there is no specific obligation to disclose. However, if there are transactions in cryptocurrency that result in capital gains or loss, it will have to be reported at the time of filing the tax return by the individual or the corporate entity.
15) Are there reporting obligations for cryptocurrency transactions?
Yes.
A separate Schedule VDA has been introduced in the tax return forms for reporting income from VDA. Further, in Schedule CG in relation to capital gains, there is a Table F where a quarterly break down of VDA income is also required to be reported.
16) How are cryptocurrency transactions treated for VAT purposes?
The applicability of GST on a virtual currency depends on whether the virtual currency can be considered as “goods”. Currently, there is no guidance that expressly classifies virtual currencies as goods; although India’s Supreme Court in the IAMAI case considered whether virtual currencies can be categorised as money or goods (or commodities) and noted that virtual currencies have attributes of both these categories.
If virtual currencies are categorised as money, then no GST should be applicable as money is excluded from its scope. However, in this case, the Supreme Court acknowledged that virtual currencies are capable of being considered intangible property and goods as well. The characterisation of a virtual currency for the purpose of GST may, therefore, ultimately depend on the context of the transaction. If cryptocurrency is considered as goods, then GST can be applicable at the rate of 18%.
Initial coin offerings or ICOS (by issuers tax residents in your jurisdiction)
17) What is the tax treatment of the ICOs for the issuers?
In our view, issuers of ICO should not be subject to a tax if there is no transfer of an asset (as the asset is yet to be created); however, it is not clear what view the Indian tax authorities may make on this issue.
18)What is the VAT treatment of the ICOs, including rules on vouchers?
As stated in point 16 above, if cryptocurrencies are considered as goods, GST may be applicable at the rate of 18%. Currently, GST law does not provide guidance on vouchers as per the relevant EU Directive.
19) Are ICOs liable to any stamp duty?
Stamp duty is a tax levied by the Government on documents and instruments executed in India or which are brought into India, and each State in India has separate stamp duty rates, which apply in respect of such documents and instruments. Thus, if there is a contractual agreement between two parties in India that tokens will be received through ICOs, then stamp duty can be applicable on that document. This will have to be assessed on a case-by-case basis.
Transactions in NFTs
Individual investors (tax resident in your jurisdiction)
20) What is the tax treatment for individuals of the creation of NFTs?
In our view, the creation of NFTs by individuals should not be subject to tax as there is no transfer of the NFT.
Corporate investors (tax resident in your jurisdiction)
21) What is the tax treatment for corporates of the creation of NFTs?
In our view, the creation of NFTs by corporates should not be subject to tax as there is no transfer of the NFT.
22) Are NFTs taxed differently to cryptocurrencies?
No. Under the IT Act, cryptocurrencies and NFTs are both included as VDAs.
23) Can tax be deferred when exchanging NFTs for other NFTs/crypto?
Currently, there are no tax deferral regimes under the IT Act when cryptocurrency/assets are exchanged. An exchange of assets will be considered as a “transfer” under the IT Act and, tax will be applicable at the rate of 30% (plus applicable surcharge) and an education levy at the rate of 4%.
24) What is the tax treatment of gifted NFTs (incl. in-game rewards)?
In the event of gifting of VDAs or in-game rewards the tax payment will have to be made by the recipient of the gifts on the FMV as income from other sources at the rate of 30% (plus applicable surcharge depending on the individuals tax slab rates) and an education levy at the rate of 4%). Section 56(2)(vii) and 56(2)(x) of the IT Act that provides for gift tax on VDAs.
25) Is there any transfer tax when acquiring NFTs for consideration?
Stamp duty is a tax levied by the Government on documents and instruments executed in India or which are brought into India, and each State in India has separate stamp duty rates, which apply in respect of such documents and instruments. Thus, if there is a contractual agreement between two parties in India relating to the transfer of VDAs, then stamp duty may be applicable on that document. This will have to be assessed on a case-by-case basis.
26) Is it obligatory to declare NFTs to tax authorities?
Under the IT Act, if a resident is only holding NFTs there is no specific obligation to disclose. However, if there are transactions involving NFTs that result in capital gains or loss, it will have to be reported at the time of filing the tax return by the individual.
27) Are there tax reporting obligations specific to NFT transactions?
Yes.
A separate Schedule VDA has been introduced in the tax return forms for reporting Income from VDA. Further, in Schedule CG in relation to capital gains under Table F, a quarterly breakup of the VDA income is also required to be reported.
The Finance Bill, 2025 includes proposed obligations on “reporting entities” to provide information on transactions in cryptoassets. A clarification will be provided by the Indian government with respect to persons covered within the definition “reporting entities” and the nature and manner of the requirement to maintain information by “reporting entities”. The proposed amendment is geared towards intermediaries like cryptocurrency exchanges which are likely to be included within the ambit of “reporting entities.” The rules will also clarify the intricacies of the due diligence to be carried out by the reporting entities for purpose of identification of any cryptocurrency -user or owner. This is likely to increase the compliance burden on the reporting entities and they will have to develop infrastructure to ensure that data is collected properly for reporting to the government. This amendment will take effect from 1 April 2025.
28) How are NFT transactions treated for VAT purposes?
As stated in Question 16 above, if NFTs are considered as goods, GST can be applicable at the rate of 18%.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
