India's 2025 cryptocurrency tax reform: Moving towards a crypto-friendly environment or tightening regulation?

India, as one of the most active countries in global encryption trading and volume, still maintains strict regulations and harsh tax policies, lagging far behind the international market's trend of friendly regulation towards encryption assets.

Written by: Fintax

News Overview

India's cryptocurrency regulatory framework continues to evolve, with Budget 2025 introducing stricter reporting requirements and enhanced regulatory mechanisms on top of the 30% tax revenue implemented in 2022. Section 115BBH of the Income Tax Act 2022 officially included crypto assets (VDAs) in the tax system for the first time, but did not allow traders to offset losses against other income. Budget 2025's new Section 285BAA in the Income Tax Act further expands the scope of regulation, requiring specific institutions to report crypto transactions within a prescribed time frame. At the same time, the government expanded the definition of VDA to include all crypto assets based on distributed ledger technology to accommodate industry developments. These changes coincide with Bitcoin's rally on good news from the U.S. election, but the market remains exposed to regulatory uncertainty and volatility risks.

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In recent years, countries around the world have been gradually shifting their regulatory attitudes towards cryptocurrency from panic and excessive regulation to a more flexible, prudent, and adaptive approach. This change is mainly driven by the rapid proliferation of crypto assets globally. However, India, as one of the most active countries in global crypto trading and volume, still maintains strict regulations and harsh tax policies, falling far behind the international market's friendly regulatory trends towards crypto assets.

India's encryption tax system is considered one of the most stringent in the world, which not only undermines investor confidence but also severely hinders the innovation and application development of blockchain technology. Despite repeated calls from various sectors of the market to relax tax policies, the stance of the Indian government has remained unwavering. However, in the 2025 budget proposal and the revision of the Income Tax Act, the Indian government has made certain adjustments to the current tax system. This article will delve into India's latest cryptocurrency tax rules and analyze whether they are a positive signal for promoting market transparency or further repression of encryption assets.

1. The Evolution of India's Encryption Regulatory Framework

India's cryptocurrency regulatory policy has undergone an evolution from strict restrictions to gradual adjustments. In the early days, the Reserve Bank of India (RBI) was highly skeptical of cryptocurrencies, even issuing a notice in 2013 warning investors about the speculative risks of crypto assets. In 2018, the RBI further prohibited banks from transacting with crypto-related businesses, attempting to limit market development through financial means. However, this ban faced strong opposition from industry organizations and market participants, and was ruled unconstitutional by the Supreme Court of India in 2020.

The 2022 fiscal budget proposal for the first time included cryptocurrencies and other encryption assets within the scope of legal regulation, establishing a series of tax policies, including a 30% capital gains tax on the profits from encryption assets (VDA) and a 1% Tax Deducted at Source (TDS) on transaction volumes. Although the introduction of this tax system provides a legal basis for tax compliance to some extent, its high tax burden and strict regulatory requirements remain controversial.

The introduction of the 2025 fiscal budget did not fundamentally reform the current tax system, but rather strengthened regulation in the areas of encryption tax reporting and information disclosure, which is planned to take effect in April 2026.

2. What do the new tax rules mean?

Despite the increasingly lenient regulatory policies in various jurisdictions around the world, India still maintains the strictest encryption tax regime globally. Although the 2025 budget proposal and the revised Income Tax Act have made adjustments to the tax rules, they have overall failed to change the current restricted status of cryptocurrency trading. Currently, India imposes a 30% tax rate on profits from encrypted assets, which is at an extreme level globally. Furthermore, this tax system does not allow investors to deduct losses or operating costs, leading many crypto companies and investors to migrate to friendlier jurisdictions. The 2025 budget proposal also further expands the definition of "Virtual Digital Assets" (VDA), bringing all blockchain-based encrypted assets into the tax scope. However, this definition still does not classify different types of encrypted assets, failing to distinguish their technical uses and economic attributes, which exacerbates regulatory compliance uncertainty.

In addition, the Income Tax Act imposes stricter penalties on unreported VDAs, classifying them as "unreported income" and imposing fines of up to 70%, without providing any exemptions or reductions. This level of punishment reflects the Indian government's high-pressure attitude towards encryption assets. More critically, as mentioned earlier, the Indian government's definition of encryption assets is overly broad, resulting in an excessive tax burden for Indian encryption users.

In such a harsh tax environment, the large-scale relocation of domestic encryption companies in India has become a trend, while the continuous growth of the encryption market volume reflects the huge divergence between regulatory policies and market realities. Although the government is trying to curb the encryption market through high tax policies, the younger generation of investors in India still views encryption assets as a primary or supplementary source of income.

3. Impact on investors and the market

India's harsh tax policies have undoubtedly made it more difficult for crypto companies to operate in the local market. While the crypto industry remains strong in India, a friendlier regulatory environment in other jurisdictions is attracting companies to relocate. Before, the Indian crypto market is still benefiting from the rise in the price of crypto assets. Some studies predict that the Indian crypto market is expected to grow from the current $2.5 billion to $15 billion by 2035. However, overly stringent regulation could prompt capital flows in India's crypto industry to other countries, resulting in reduced government tax revenues, limited market innovation, and affecting India's competitiveness in the global digital financial ecosystem.

Another major challenge of the Indian encryption market is the complexity of compliance and legal uncertainty. Although the Indian government proposed to establish a comprehensive encryption regulatory framework as early as 2021, the bill tends to prohibit Bitcoin and altcoins, and promote the Central Bank Digital Currency (CBDC), ultimately causing the bill to be delayed. In this regulatory environment, market participants face policy shifts and compliance risks, hindering long-term investments. Enterprises and investors are concerned about the possibility of sudden government crackdowns or additional tax burdens in the future, which affects business decisions and market vitality.

In conclusion, despite the Indian government's strengthening of regulations under the guise of financial stability, a strict tax system and vague regulatory framework are severely limiting the innovation capacity of India's encryption market and affecting India's global competitiveness. The Indian government needs to find a balance between investor protection and market development, reduce tax rates, clarify asset classification, and reduce legal uncertainty to enhance market confidence and attract more capital. If India continues to maintain its current regulatory stance, it may miss economic opportunities in the blockchain and digital finance sectors; conversely, India still has the potential to become a significant player in the global encryption market.