Interpretation of India's crypto tax reform in 2025: Going towards crypto-friendly or tightening supervision?

News Overview

India's cryptocurrency regulatory framework continues to evolve, with the 2025 fiscal budget introducing stricter reporting requirements and strengthening regulatory mechanisms based on the 30% tax implemented in 2022. Article 115BBH of the Income Tax Act of 2022 officially incorporates crypto assets (VDA) into the tax system for the first time, but traders are not allowed to deduct other income from losses. The 285BAA clause added to the Income Tax Act of the 2025 Budget further expands the scope of regulation, requiring specific institutions to report crypto transactions within the prescribed time limit. Meanwhile, the government has expanded its VDA definition to cover all crypto assets based on distributed ledger technology to adapt to industry development. These changes coincide with Bitcoin rising due to good news from the U.S. election, but the market still faces regulatory uncertainty and volatility risks.

News source: https://bitnewsbot.com/india-expands-crypto-oversight-new-tax-> rules-and-reporting-requirements-coming-in-2025/

FinTax brief review

In recent years, countries around the world's regulatory attitude towards cryptocurrencies has gradually shifted from panic and over-regulation to a flexible, prudent and highly adaptable direction. This shift is driven mainly by the rapid popularity of crypto assets around the world. However, as one of the most active countries in the world with crypto trading and transaction volume, India still maintains strict regulation and strict tax policies, far behind the trend of friendly regulatory oversight of crypto assets in the international market.

India's crypto tax system is considered one of the most stringent in the world, which not only hits investors' confidence, but also seriously hinders the innovation and application development of blockchain technology. Despite repeated calls from all sectors of the market to relax tax policies, the Indian government's position has never wavered. However, in the 2025 Budget and the revision of the Income Tax Act, the Indian government has made certain adjustments to the current tax system. This article will explore India's latest cryptocurrency tax rules in depth and analyze whether it is a positive signal to promote market transparency or a further suppression of crypto assets.

1. The evolution of India 's crypto-regulatory system

India's cryptocurrency regulatory policy has gone through an evolution from strict restrictions to gradual adjustments. In the early days, the RBI was highly skeptical about cryptocurrencies and even issued an announcement in 2013 warning investors about speculative risks in crypto assets. In 2018, the RBI further banned banks from trading with crypto-related companies, trying to limit market development through financial means. However, the ban was strongly opposed by industry institutions and market participants and was ruled unconstitutional by the Supreme Court of India in 2020.

The 2022 fiscal budget included cryptocurrencies and other crypto assets in the scope of legal supervision for the first time, and established a series of tax policies, including a 30% capital gains tax on crypto assets (VDA) income and a 1% source withholding tax (TDS) on transaction volume. Although the introduction of this tax system provides a legal basis for tax compliance to a certain extent, its high tax burden and strict regulatory requirements are still controversial.

The release of the 2025 fiscal budget has not carried out fundamental reforms to the current tax system. It has only strengthened supervision in crypto tax declarations and information disclosure, and is scheduled to take effect in April 2026.

2. What does the new tax rules mean?

Despite increasingly loose regulatory policies in multiple jurisdictions around the world, India still maintains the world's most stringent crypto tax system. Although the 2025 Budget and the revised Income Tax Act make adjustments to tax rules, overall, failed to change the current situation of restricted cryptocurrency transactions. Currently, India imposes a 30% tax on crypto assets, which is at an extreme global level. Additionally, the tax system does not allow investors to deduct losses or operating costs, which has led to numerous crypto businesses and investors moving to more friendly jurisdictions. The 2025 budget also further expands the definition of "crypto assets" (VDA), including all crypto assets based on blockchain technology into the scope of taxation. However, this definition still does not classify different types of crypto assets, not distinguishing between their technical uses and economic attributes, resulting in increased uncertainty in regulatory compliance.

In addition, the Income Tax Act imposes stricter penalties on undeclared VDAs, classifies them as “undeclared income” and imposes a fine of up to 70% without providing any exemptions or relief policies. This penalties reflect the high-pressure attitude of the Indian government towards crypto assets. More importantly, as mentioned above, the Indian government's definition of crypto assets is too broad, resulting in excessive tax burdens for Indian crypto users.

Under such a harsh tax environment, large-scale migration of local crypto companies in India has become a trend, and the continued growth in transaction volume in crypto market reflects the huge differences between regulatory policies and market reality. Despite the government's attempt to curb crypto markets through high tax policies, the younger generation of Indian investors still see crypto assets as a primary or auxiliary source of income.

3. Impact on investors and markets

India's strict tax policies undoubtedly make it more difficult for crypto companies to operate in the local market. While the crypto industry remains strong in India, a more friendly regulatory environment in other jurisdictions is attracting business migration. Previously, the Indian crypto market still benefited from the rise in crypto asset prices. Research has predicted that by 2035, the size of India's crypto market is expected to grow from the current US$2.5 billion to US$15 billion. However, overly strict regulation may prompt capital in India's crypto industry to flow to other countries, resulting in a reduction in Indian government tax revenue, restricted market innovation, and affect India's competitiveness in the global digital finance ecosystem.

Another major challenge in the crypto market in India is compliance complexity and legal uncertainty. Although the Indian government proposed to formulate a comprehensive crypto regulatory framework as early as 2021, the bill tends to ban bitcoin and altcoins and implement the Central Bank of India Digital Currency (CBDC), which ultimately led to the delay in implementing the bill. In this regulatory environment, market entities face sudden policy changes and compliance risks, resulting in long-term investment hindered. Businesses and investors are worried about the possibility of government raids or additional tax burdens in the future, which will affect business decisions and market vitality.

In short, although the Indian government strengthens regulation on the grounds of financial stability, a strict tax system and a vague regulatory framework are seriously restricting the innovation capabilities of India's crypto 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 classifications, 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 fields of blockchain and digital finance. Conversely, India may still become an important player in the global crypto market.