Crypto Tax Enforcement and Penalties in India: What You Need to Know in 2025

India’s Crypto Tax Rules Are Harsh - And Enforcement Is Getting Tougher

If you’re trading, staking, or holding cryptocurrency in India, you’re not just dealing with price swings. You’re also under a tax system that treats crypto like a lottery win - no deductions, no loss offsets, and no room for error. Since April 2022, the government has imposed a 30% tax on all crypto gains, plus a 1% TDS on every trade, and now an 18% GST on platform services. But what happens if you don’t file? What penalties could you face? And how is the government even tracking your transactions?

The short answer: the rules are strict, the monitoring is expanding, and the consequences are serious - even if you haven’t heard of anyone getting fined yet.

How the 30% Crypto Tax Works (And Why It’s So Unfair)

Under Section 115BBH of the Income Tax Act, every profit from selling Bitcoin, Ethereum, or any other virtual digital asset (VDA) is taxed at 30%. That’s not a capital gains rate. That’s the same rate applied to lottery winnings. No deductions. No indexation. No carrying forward losses.

Let’s say you bought 1 Bitcoin for ₹30 lakh in 2021 and sold it for ₹45 lakh in 2025. Your profit is ₹15 lakh. You owe ₹4.5 lakh in tax. Even if you lost ₹10 lakh on another trade this year, you can’t use that loss to reduce your tax bill. You still pay 30% on the ₹15 lakh gain. This is one of the strictest crypto tax systems in the world.

Cost price includes the purchase price plus any fees paid to buy or transfer the asset. Sale price is what you received after fees. The tax is calculated per transaction - not per year. So if you traded 15 times, you’re taxed 15 times, even if your net result was zero or negative.

1% TDS on Every Crypto Trade - Even If You’re Not Profiting

Since July 1, 2022, every time you sell crypto on an Indian exchange, the buyer (or the exchange acting as buyer) must deduct 1% as Tax Deducted at Source (TDS). This applies whether you made money or lost money.

That 1% is not your final tax - it’s an advance payment. It gets adjusted when you file your return. But here’s the catch: if you’re trading on decentralized platforms like Uniswap or via peer-to-peer (P2P) apps like Paxful, the exchange doesn’t deduct TDS. That’s a loophole. But the government knows it’s there.

Exchanges like WazirX, CoinDCX, and ZebPay now report every TDS deduction to the Income Tax Department. Your PAN is linked to every trade. If you don’t report a trade where TDS was deducted, the system will flag you. The department already has a match of your transactions - you just need to declare them.

Now There’s 18% GST on Crypto Platform Services

From July 7, 2025, every service provided by a crypto platform to an Indian user is subject to 18% GST. That includes:

• Trading fees
• Deposit and withdrawal charges
• Staking rewards processing fees
• Wallet management
• KYC verification
• Margin trading fees

Even if you’re not buying or selling, just using a wallet or earning staking rewards through a platform, you’re paying GST. Platforms must now register for GST regardless of turnover - even if they make less than ₹20 lakh a year. This is unusual. Most small businesses don’t need GST registration until they hit ₹20 lakh. Crypto platforms? They’re forced to register no matter what.

Why? Because they’re classified as Online Information and Database Access or Retrieval (OIDAR) services under GST law. That means the government can track every fee, every payment, every user. It’s not just about taxes - it’s about control.

How the Government Tracks You - Even If You Use Offshore Exchanges

You might think using Binance, Kraken, or OKX avoids Indian tax. It doesn’t.

The Income Tax Department has direct access to data from Indian banks and payment gateways. If you transferred ₹5 lakh to Binance from your SBI account, that transaction is flagged. If you later withdrew ₹7 lakh back to your bank, the system matches the inflow and outflow. If you didn’t report the gain, you’re on their radar.

Indian exchanges are required to issue Form 16A for TDS and GST invoices for all services. These documents are uploaded to the government’s portal. The IT Department cross-checks your bank statements, your exchange statements, and your ITR. If there’s a mismatch - you get a notice.

Even if you use a non-Indian exchange, the moment you convert crypto to INR and deposit it into your bank account, the trail begins. Banks report large or frequent transfers to the Financial Intelligence Unit (FIU). That’s how the tax department finds you.

What Happens If You Don’t Report Crypto Income?

The government hasn’t published a list of crypto penalty cases - yet. But that doesn’t mean penalties don’t exist.

Here’s what you risk if you ignore crypto reporting:

• Underreporting penalty: Up to 50% of the tax evaded under Section 270A. If you owe ₹4.5 lakh in crypto tax and hide it, you could be fined ₹2.25 lakh more.
• Interest: 1% per month (12% per year) on unpaid tax from the due date of filing until payment.
• Prosecution: If the tax evaded exceeds ₹10 lakh, you can be prosecuted under Section 276C - punishable by 3 months to 7 years in jail.
• Asset seizure: The Income Tax Department can attach your bank accounts, property, or crypto holdings under the Income Tax Act’s attachment powers.
• ITR rejection: If you file ITR without Schedule VDA and the department finds crypto income, your return is treated as defective. You’ll get a notice to correct it - and face penalties if you delay.

These aren’t theoretical risks. In 2024, the IT Department initiated 1,200+ compliance notices targeting individuals with unexplained crypto transactions above ₹5 lakh. Most were resolved with payment of tax + penalty. Some went to litigation.

How to Report Crypto Income - Step by Step

Reporting crypto correctly isn’t hard. You just need the right forms.

1. Use ITR-2 if you’re a retail trader (most people). Use ITR-3 if you’re running a crypto business (e.g., mining, arbitrage, market making).
2. Fill out Schedule VDA - it’s a new section added to both forms for FY 2024-25 (AY 2025-26). This is where you list every crypto transaction: date, asset, cost, sale price, profit/loss, TDS deducted.
3. Attach your exchange statements and GST invoices if you paid GST on platform fees.
4. Pay any outstanding tax before filing.
5. Keep records for 6 years. The tax department can audit you anytime within that window.

Even if you lost money overall, you still have to report every trade. Not reporting is a bigger risk than reporting a loss.

Why So Many Traders Are Leaving India

The 30% tax + 1% TDS + 18% GST combo has made trading in India expensive and unattractive. Trading volumes on Indian exchanges dropped 60% between 2022 and 2025. Many retail traders now use offshore platforms and cash out via P2P - but that’s risky.

Exchanges like CoinSwitch Kuber and ZebPay have cut back on services. Some crypto startups have moved their teams to Dubai or Singapore. The government’s crackdown on crypto has backfired - it’s not bringing in more revenue. It’s pushing the market underground.

And here’s the irony: the government is now asking crypto firms whether the 30% tax is too high. In August 2025, the Central Board of Direct Taxes (CBDT) sent out questionnaires to exchanges asking if the system is working. That’s a sign they know it’s broken.

What’s Next? Changes Coming in 2026

The current system is unsustainable. The CBDT is reviewing:

• Whether the 1% TDS on every trade should be reduced or removed
• Whether loss offset should be allowed
• Whether offshore exchanges should be taxed differently
• Whether crypto should be treated as an asset class - not a gambling product

A comprehensive crypto law is being drafted. It could bring licensing, KYC rules, and even a national digital currency. But until then, you’re stuck with the current rules.

Don’t wait for a law change. File your taxes. Report your trades. Pay what you owe. The penalties aren’t just numbers - they’re real. And the government is watching.