India has finally made its stance clear on cryptocurrencies with the new Income Tax (No. 2) Bill of 2025, and it is not good news for traders or investors. The new law replaces the old Income Tax Act of 1961 and confirms that crypto will remain in the “virtual digital asset” bucket with strict rules on taxation.
On paper, this looks like progress because at least crypto is not banned. But in reality, the tax burden is so heavy that it is choking the very industry that could bring innovation and financial inclusion. In our view, India’s crypto tax rules are designed more to control and discourage activity than to create a fair environment for growth.
A Flat 30% Tax That Punishes Everyone
The most striking feature of India’s crypto taxation is the flat 30% tax on all gains from trading, whether short-term or long-term. There is no difference between holding an asset for a week or for five years. This treatment goes against the very spirit of investment taxation where longer holding usually benefits from lower rates.
The government insists that this blanket rule is needed to stop tax evasion and speculation. However, what it really does is punish small traders and everyday investors. Someone who makes a few thousand rupees of profit is taxed at the same rate as a wealthy whale making crores. This is not a balanced policy, it is a blunt instrument.
To make matters worse, no deductions are allowed except the basic cost of buying the asset. Losses from one crypto cannot be offset against profits from another. They cannot even be carried forward to future years. This is unlike the stock market where investors have more reasonable rules on setting off losses.
The Burden of TDS
As if the 30% tax was not enough, there is also the 1% tax deducted at source (TDS) under Section 194S. Every time you sell crypto worth more than a set threshold, the buyer must deduct 1% and deposit it with the government. This happens whether you make a profit or not.
The stated reason is transparency. The government says it wants to track every transaction and make sure nothing slips through the cracks. But for traders this has become a nightmare. The constant deductions eat into capital, reduce liquidity and make active trading almost impossible.
If you are a high-frequency trader, TDS becomes a bleeding wound. It locks up your funds and forces you to keep reconciling tax credits just to know how much you actually earned. It is not just discouraging, it is suffocating.
Reporting That Feels Like Punishment
India’s reporting rules for crypto are some of the harshest in the world. From the financial year 2025-26 onwards, a new Schedule VDA in the income tax return will require taxpayers to list each and every transaction separately.
Imagine being a trader with hundreds or even thousands of transactions across multiple exchanges. Now imagine having to enter every single one in your tax filing. This is not regulation, this is punishment by paperwork.
Yes, proper reporting is important, but there must be a balance. The current approach treats every trader like a potential criminal, forcing them to prove their honesty with endless records. It is little wonder that many Indian traders have already moved to offshore exchanges or simply given up.
The Ambiguity That Hurts Innovation
One of the biggest problems with India’s approach is the lack of clarity around newer areas of crypto. DeFi protocols, staking rewards, NFT sales, and cross-border transactions are not properly addressed in the tax rules. Instead, they are lumped into vague categories and treated as income in ways that do not always make sense.
For example, staking rewards are taxed as income the moment you receive them, even if the tokens cannot be sold or have very low liquidity. This forces people to pay tax on “paper gains” that may never turn into real money. Similarly, airdrops and hard forks are taxed the moment they arrive in your wallet, regardless of their market value or usability.
This ambiguity does not just confuse traders, it kills innovation. Developers and entrepreneurs are hesitant to build projects in India because they cannot be sure how taxes will apply. This is a loss not only for the crypto community but also for the wider economy that could benefit from blockchain innovation.
Regulators Closing In
India has made it clear that crypto will remain under tight surveillance. The Income Tax Department, the Financial Intelligence Unit, the RBI, and SEBI all have their eyes on the sector. The government says this is to prevent money laundering and fraud, but the result is a climate of fear.
Crypto is legal to buy, sell, and hold, but it is not legal as a method of payment. This keeps it in a grey zone where traders must always look over their shoulders. At the same time, exchanges must comply with strict anti-money laundering rules, often passing the cost and hassle on to their users.
Instead of encouraging safe adoption, India has created an environment where serious investors feel harassed and casual investors feel unwelcome.
The Harsh Truth for Traders
For Indian traders, the reality in 2025 is simple: you can trade crypto, but you will pay a heavy price. You will pay 30% tax on your gains with no relief on losses. You will pay 1% TDS on every significant transfer. You will face endless paperwork and strict reporting. And you will still live in uncertainty about how some aspects of crypto will be taxed tomorrow.
Yes, India has not banned crypto, and that is something. But when the rules are this tough, a ban almost feels unnecessary. Traders and builders are already being driven away by the sheer weight of compliance.
Our View: Time for Rethink
In our opinion, India’s current tax regime on crypto is short-sighted. It is designed to maximise control and revenue in the short term, but it risks losing the long-term benefits of innovation and investment.
A fairer approach would be to align crypto taxation more closely with existing rules for stocks and commodities. Losses should be allowed to offset profits. Long-term holding should get some relief. TDS should be reviewed or reduced to avoid choking liquidity. And most importantly, clear guidance should be issued for DeFi, NFTs, and emerging use cases.
India has the talent and demand to be a global leader in crypto and blockchain. But unless the tax policy changes, that potential will be wasted. Traders will keep moving offshore, startups will keep relocating, and the country will be left behind.
Crypto taxation in India in 2025 is not just strict, it is suffocating. It treats every trader with suspicion and every transaction as a taxable event. It gives no room for loss relief, no reward for long-term investment, and no clarity on new areas of the crypto ecosystem.
As things stand, the taxman always wins and the trader always loses. If India truly wants to embrace the future of finance, it must stop treating crypto as a threat to be contained and start treating it as an opportunity to be nurtured.
