Income Tax on Crypto Transactions: Understanding India’s Crypto Tax Laws

Crypto traders in India often struggle to understand how taxes apply to their transactions. With the government tightening regulations, you cannot afford to ignore tax implications. If you buy, sell, or hold crypto, you might wonder how much tax you owe and what rules apply to different transactions. Many traders assume crypto works like stocks, but the tax treatment differs. Not knowing the rules can lead to unexpected tax liabilities, penalties, or even legal trouble.

India’s crypto tax laws have changed significantly in recent years, making it crucial to stay updated. The government now classifies crypto as a virtual digital asset (VDA) and applies a flat 30% tax on capital gains without allowing deductions. On top of that, a 1% TDS applies to every transaction, affecting liquidity and profits. But what about income tax? How does that work on crypto?

This article will help you understand how income tax is applied to crypto, thereby helping you manage your tax burden and avoid costly mistakes. So, let’s begin.

How Is Income Tax Levied On Crypto Transactions?

If you earn income through crypto transactions, such as salary in crypto, mining rewards, or staking rewards, you must pay income tax. Crypto tax in India is governed by Section 2(47A) of the Income Tax Act, which classifies cryptocurrencies, NFTs, and tokens as Virtual Digital Assets (VDAs). This means all crypto transactions fall under taxable income. The tax authorities consider these assets similar to other investments, making them subject to taxation based on their usage.

The tax is calculated based on the fair market value of the received crypto on the date of the transaction. The fair market value determines how much tax you owe, ensuring accurate reporting of crypto earnings. Since these earnings are treated as taxable income, failing to report them can result in penalties. Crypto investors in India must maintain records of all transactions to ensure compliance with tax laws.

Crypto Transactions That Attract Income Tax in India

Here’s a list of different crypto transactions that attract income tax in India: 

Crypto Airdrop

Crypto airdrops give you free tokens before a project launches. You don’t buy them, but they still count as a transaction when received. If you later sell, swap, or use them, they become taxable events.

In India, airdrops fall under “Income from Other Sources” and are taxed based on your income slab. The tax is calculated on the token’s fair market value when received. 

Crypto Mining

Crypto mining involves validating transactions and adding new blocks to a blockchain. If done on a large scale for profit, it’s considered a business activity. If done casually without a structured setup, it falls under personal earnings.

Mining profits in India are taxed based on their classification. Business income follows regular slab rates, allowing deductions for mining-related expenses. If it’s a hobby, earnings are taxed under “Income From Other Sources,” with no deductions permitted

Crypto Staking

Crypto staking involves earning rewards by holding and locking your cryptocurrency in a network. These rewards come in the form of additional tokens, which are subject to taxes in India.

In India, staking rewards are taxed based on their fair market value in INR and is mentioned under “Income From Other Sources”. Any profit from selling, swapping, or using these rewards is taxed at 30% capital gains tax plus an additional 4% health and education cess.

Receiving Crypto As Salary

If your employer pays you in cryptocurrency, it’s treated like regular income. The tax department considers this payment to be part of your earnings, just like a salary in INR. The value of the cryptocurrency is calculated based on its market price in Indian Rupees on the day you receive it.

Your income tax slab determines how much tax you owe. If you later sell or exchange the crypto, it’s taxed at 30% with an extra 4% cess. A 1% TDS applies when selling, deducted by the buyer.

Receiving Crypto Gifts Above INR 50,000

Receiving crypto as a gift is taxable if the total value exceeds INR 50,000 in a financial year. It applies to any crypto received as a gift from non-relatives, including airdrops, giveaways, or transfers without payment.

In India, these gifts are taxed based on your income slab rate. If your total income, including gifted crypto, pushes you into a higher tax bracket, you will pay more tax. However, gifts from close relatives like parents or spouses are exempt.

Crypto Referrals

Crypto referral rewards come from promotions where users earn digital assets for referring others. These rewards are treated as income, whether received in tokens, coins, or other crypto assets.

In India, referral rewards in crypto are taxable as additional income. The tax rate varies based on total annual earnings, ranging from 0% to 30%, depending on the income slab.

ICOs and IDOs

ICOs and IDOs allow you to invest in new crypto projects by acquiring tokens before they hit exchanges. You may receive these tokens through purchases or airdrops, where projects distribute free tokens to early supporters.

In India, airdropped tokens fall under “Income From Other Sources” and are taxed based on your income slab. Selling these tokens attracts a 30% tax plus a 4% cess. If you swap Ethereum or Bitcoin for ICO stakes, it counts as a crypto disposal and is taxed at the same rate.

Income From Consultancy Services

Crypto consultancy earnings come from providing expert advice on trading strategies, market trends, blockchain technology, and compliance. Consultants charge fees for their insights, making this a common income source in the crypto industry.

If earned in crypto, this income falls under IFOS and is taxed based on the individual’s slab rate. Necessary deductions can be claimed, reducing taxable income.

Income Tax Rate For Assessment Year (AY) 2024-25

Here’s the updated tax slab from the AY 2024-25 for individuals under 60.

Tax Slab	Rates
Up to Rs. 3,00,000	NIL
Rs. 300,000 to Rs. 6,00,000	5% on income which exceeds Rs 3,00,000
Rs. 6,00,000 to Rs. 900,000	Rs 15,000 + 10% on income more than Rs 6,00,000
Rs. 9,00,000 to Rs. 12,00,000	Rs 45,000 + 15% on income more than Rs 9,00,000
Rs. 12,00,000 to Rs. 1500,000	Rs 90,000 + 20% on income more than Rs 12,00,000
Above Rs. 15,00,000	Rs 150,000 + 30% on income more than Rs 15,00,000

Penalties For Crypto Tax Evasion

Failing to pay taxes on cryptocurrency income in India can lead to severe penalties, including fines and imprisonment. Below is an overview of the penalties for different types of tax evasion.

Delay in Filing Income Tax Returns

Missing the income tax return (ITR) deadline can lead to financial penalties. If your income exceeds ₹5,00,000, you may have to pay a late fee of up to ₹5,000. For lower incomes, the fee is capped at ₹1,000. Additionally, interest is charged under Sections 234A and 234B at 1% per month from the due date until payment.

Non-Filing of Income Tax Returns

If you fail to file your ITR, penalties include fines and possible imprisonment. Evading taxes over ₹25,00,000 can result in a prison term of 6 months to 7 years, along with a fine. For amounts below this threshold, imprisonment ranges from 3 months to 2 years.

Misreporting or Underreporting Crypto Income

Misreporting income—such as failing to record transactions or making false entries—results in a penalty of 200% of the tax owed. Underreporting, however, incurs a 50% penalty. Severe cases of willful tax evasion can lead to imprisonment of 6 months to 7 years for amounts exceeding ₹25,00,000 and 3 months to 2 years for lower amounts.

Failure to Disclose Crypto Investments

If crypto investments are not recorded in financial statements or expenses exceed documented income without explanation, the undeclared amount is taxed at 60%, plus a 25% surcharge and 4% cess, leading to an effective tax rate of 78%. Additionally, a 10% penalty may apply.

Conclusion

Ignoring crypto tax rules in India can lead to unnecessary penalties and financial setbacks. With strict tax policies in place, you need to understand how these laws impact your profits, transactions, and overall tax liability. Whether you’re a trader, investor, or someone just getting started with crypto, knowing the tax rules will help you make informed decisions and avoid costly mistakes.