Indian residents face a comprehensive tax regime for crypto, covering assets held on foreign exchanges and every crypto-to-crypto swap. The Income Tax Act 2025, FEMA, and the Black Money Act create a framework that leaves little room for avoidance. Gains are taxed at a flat 30% plus 4% cess, and non-disclosure of foreign holdings can lead to imprisonment of up to 10 years.
Foreign exchange holdings are fully taxable. India taxes residents on worldwide income, so crypto gains on Binance, Coinbase, Kraken, or any overseas platform are subject to the same 30% rate as domestic transactions. Since foreign exchanges are not registered with the Financial Intelligence Unit (FIU-IND), they do not deduct the 1% TDS; individuals must self-assess and pay all taxes. Keeping proceeds offshore does not defer the liability. Schedule FA of the Income Tax Return requires residents to declare foreign crypto assets if their aggregate value exceeds ₹20 lakh at any time during the financial year. This includes the name of the custodian, asset type, year-end INR value, and any income. Failure to disclose triggers prosecution under the Black Money Act, with severe penalties.
Crypto-to-crypto trading is also explicitly taxable. Swapping Bitcoin for Ethereum, USDT for Solana, or any pair constitutes a "transfer" of a Virtual Digital Asset (VDA). The taxable gain is calculated as the INR Fair Market Value (FMV) of the received crypto minus the original cost. Even if no fiat currency changes hands, the 30% tax applies. The no-loss-offset rule makes active trading particularly costly: each profitable swap is taxed in full, while losses provide no relief. For example, a ₹50,000 gain on one trade and an ₹80,000 loss on another still result in ₹15,000 tax on the gain.
TDS obligations extend to swaps. On registered Indian exchanges, the platform deducts 1% TDS based on the INR FMV. On P2P or international platforms, the buyer is technically required to deduct and deposit TDS manually. Decentralized protocol swaps remain in a grey area but carry the same legal obligation. All VDA transfers, including loss-making swaps, must be declared line-by-line in Schedule VDA of the ITR.
Detection of undisclosed foreign crypto is tightening. India has joined the OECD’s Crypto-Asset Reporting Framework (CARF), effective April 2027, which will automatically share transaction data from foreign exchanges. Already, the Income Tax Department has issued notices to users of foreign platforms based on information exchange. The combination of Schedule FA, PMLA notices, the Black Money Act, and automated data flows means geographic distance offers no tax shelter.
