Is cryptocurrency legal in India in 2026? What is the tax?

Cryptocurrency is not banned, but not legal tender. The Indian regulatory position is best summarised as 'taxed, traceable, but not banned'.

Key milestones:

(1) RBI's 2018 banking restrictions — barred banks from servicing crypto businesses — was struck down by the Supreme Court in Internet and Mobile Association of India v. RBI, (2020) 10 SCC 274 as disproportionate;
(2) Finance Act, 2022 introduced the tax framework for 'Virtual Digital Assets' (VDAs) without legitimising them as legal tender;
(3) 2023 PMLA notification brought VDA Service Providers under anti-money-laundering oversight;
(4) RBI's e-Rupee (CBDC) is the only RBI-issued digital currency.

You can own, trade, and earn from crypto legally, but you cannot use it to pay for goods or services (no merchant is obligated to accept it), and your bank may refuse certain crypto-related transactions on its own internal risk policies.

Crypto income is taxed under a separate, punitive regime introduced by the Finance Act, 2022 in the Income-Tax Act, 1961:

(1) Section 115BBH — income from transfer of Virtual Digital Assets is taxed at a flat 30% + applicable surcharge and cess;
(2) No deductions except cost of acquisition — you cannot deduct trading platform fees, internet costs, electricity for mining, etc.;
(3) Losses cannot be set off — loss on one VDA cannot offset gain on another VDA, nor income from any other head. Losses also cannot be carried forward;
(4) Section 56(2)(x) — gifts of VDA above ₹50,000 in aggregate per year are taxable in the recipient's hands at slab rates;
(5) No long-term/short-term distinction — flat 30% regardless of holding period.

The high effective tax rate (often 30% + 15% surcharge + 4% cess ≈ 35.88%) is deliberately discouraging. Plan accordingly — Indian crypto traders often book losses they cannot use against future gains.

Section 194S of the Income-Tax Act requires the buyer of a VDA to deduct 1% TDS on the consideration paid to the seller. Practical implications:

(1) Thresholds — TDS applies above ₹50,000 per year for specified persons (most retail traders), or ₹10,000 for others;
(2) Exchange-managed — Indian exchanges (CoinDCX, WazirX, Mudrex, etc.) automatically deduct and deposit TDS on your trades. You don't need to do this manually for exchange-routed trades;
(3) P2P and self-custody trades — you (as buyer) are responsible for TDS deduction;
(4) Refunds — if your overall tax liability is below the TDS deducted (because of trading losses or low total VDA gains), you can claim the excess as refund in your ITR.

The 1% TDS materially affects high-frequency trading economics — sustained day-trading on Indian exchanges can erode capital through TDS friction. Many traders have moved to foreign exchanges, though this creates separate FEMA compliance issues.

Crypto exchanges in India are Reporting Entities under the Prevention of Money Laundering Act, 2002 (PMLA), by virtue of a 7 March 2023 Gazette notification classifying 'Virtual Digital Asset Service Providers' (VDA-SPs).

Mandatory requirements for all exchanges serving Indian users (including foreign exchanges):

(1) Registration with FIU-IND (Financial Intelligence Unit — India);
(2) KYC of all users — Aadhaar / PAN linked accounts; periodic re-verification;
(3) Maintenance of transaction records for 5 years;
(4) Reporting Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs) to FIU-IND;
(5) Travel Rule compliance for cross-exchange transfers;
(6) Appointment of a Principal Officer and Designated Director responsible for compliance.

In late 2023, FIU-IND blocked access to multiple non-compliant foreign exchanges (Binance, Kraken, Bitfinex, etc.). Use only FIU-IND-registered exchanges — check the FIU-IND registered entities list before depositing funds.

Crypto declaration is now formalised in Indian tax returns:

(1) Schedule VDA — introduced in ITR-2 and ITR-3 from AY 2023-24. List every VDA transaction with date of acquisition, date of transfer, cost, sale value, and income computed;
(2) Crypto income on Schedule VDA flows to Schedule SI (Special Income) at the flat 30% rate, separate from your other income;
(3) TDS claimed — pulled into Schedule TDS, automatically credited from Form 26AS;
(4) Foreign exchange holdings — if you hold VDA on a foreign exchange or self-custody wallet outside India, additional disclosure under Schedule FA (Foreign Assets) is required. Failure to disclose attracts penalties under the Black Money Act, 2015, including 120% tax + 10-year imprisonment for wilful non-disclosure.

Steps to take:
(1) Trade only on FIU-IND-registered exchanges to keep KYC and reporting clean;
(2) Maintain transaction logs and bank statements for at least 8 years;
(3) Report income under Schedule VDA in your ITR — even on losses;
(4) For complex cases (international transfers, mining or staking income, NFTs, airdrops, DAO governance income), engage a reputable, specialised crypto-tax/FEMA lawyer or CA.