The Indian government has made its position on cryptocurrencies clear over the past few years. Crypto is not banned, but it is also not recognised as legal tender. Instead, it sits in a grey area, heavily monitored and heavily taxed. With the Income Tax (No. 2) Bill, 2025 now replacing the old Income Tax Act, the framework for taxing crypto assets is more firmly defined than ever.

For traders and investors, the rules are strict. The state has chosen a flat 30% tax rate on all gains from crypto, plus a 1% tax deducted at source (TDS) on transfers above a certain value. In short, the government wants its share whether you profit or not.

But the bigger question is whether this approach helps or harms the growth of India’s crypto ecosystem. From where we stand, the tax rules look more like a blunt tool than a thoughtful strategy.

The Weight of a Flat 30%

There is no denying the government’s intent. By placing crypto under the category of virtual digital assets (VDAs), it has brought Bitcoin, Ether, NFTs and other tokens firmly into the tax net. Section 115BBH of the new law makes sure of that.

All profits, whether short-term or long-term, face the same treatment: a flat 30% tax. No relief if you hold your tokens for years. No chance to offset losses from one token against another. Even mining rewards, staking income, and airdrops are pulled in as taxable events.

This rigid approach is tough on retail investors. Consider a young trader who experiments with multiple tokens. She makes a small gain on one coin but a bigger loss on another. Under the current system, her losses cannot offset her gains. She pays tax on the profit, even if her portfolio overall is in the red.

The principle of “taxing gains” is fair. But the refusal to allow offsets shows a lack of nuance. Stock market investors can at least balance losses against profits. Why should crypto be treated differently?

The Burden of 1% TDS

The introduction of a 1% TDS on every trade was meant to monitor activity and improve compliance. In practice, it has become a burden.

For traders who buy and sell frequently, this deduction eats into capital and reduces liquidity. Even though TDS can be claimed back when filing returns, the constant drain makes trading less efficient. Smaller investors often lack the patience or paperwork to claim refunds, which makes the tax feel more like a penalty than a safeguard.

The rules around TDS are also far from simple. When you buy a token with another token, you must still deduct 1% in cash. If the cash part of the deal is too small to cover it, you must add money from your own pocket. For a market that prides itself on decentralisation and peer-to-peer efficiency, this process feels clumsy and outdated.

The government might see it as a way to tighten oversight. But from a trader’s perspective, it looks like red tape designed without understanding how crypto transactions actually work.

Compliance Without Clarity

Tax compliance is one thing. Tax confusion is another. The law now requires taxpayers to report each transaction separately under the new Schedule VDA. While this might sound like accountability, it creates enormous pressure on anyone who trades frequently or uses multiple platforms.

Imagine a trader who makes hundreds of small trades across centralised exchanges and decentralised apps. Tracking every rupee value, every swap, every wallet transfer is exhausting. Mistakes are inevitable. Yet the penalties for non-compliance are harsh, ranging from fines to possible prosecution.

The lack of clarity extends to DeFi, NFTs and cross-border use. What is the correct treatment of staking income? How should a trader report using a foreign exchange wallet under FEMA rules? There is still no clear guidance. Traders are left to interpret the law themselves, hoping their understanding matches that of the taxman.

This approach might bring in short-term revenue for the government, but it risks pushing traders away from compliant behaviour. Some will simply move to unregulated platforms, or worse, operate in the shadows. That is not a healthy outcome for a country that wants to position itself as a leader in digital innovation.

Does India Want Crypto to Thrive?

The biggest question behind all of this is whether India truly wants crypto to grow. The government’s tone has been cautious at best, hostile at worst. The Reserve Bank of India has long warned against the risks of crypto. Now the tax system seems designed to make trading unattractive.

From one perspective, this is understandable. India is a country of over a billion people. The government wants to protect citizens from risky speculation and fraud. It also wants to prevent tax evasion and money laundering. But the heavy-handed tax structure suggests the government sees crypto more as a threat than an opportunity.

Other countries are experimenting with lighter, smarter frameworks. Some allow loss offsets. Some encourage innovation in DeFi while keeping fraud in check. India, meanwhile, has chosen the strictest path. The risk is that talent, capital and innovation will move abroad while Indian traders and developers are left behind.

The Road Ahead

As things stand in 2025, Indian traders must live with these rules. If you earn from crypto, expect to pay 30% tax on your gains and 1% TDS on every trade. Keep detailed records, use reliable tax software, and be ready to file on time. For individuals, the deadline is July 31. For businesses requiring an audit, it is October 31.

But looking beyond compliance, the bigger conversation must continue. Crypto is not going away. Tokenised assets, decentralised finance and digital ownership are shaping the future of global markets. India cannot afford to shut itself out with a tax regime that stifles participation.

A more balanced approach would recognise both the risks and the opportunities. It would allow for loss offsets, provide clarity on DeFi and NFTs, and design TDS rules that match the realities of digital trading. Most importantly, it would treat crypto traders not as potential evaders but as participants in a new economy.

Until then, the current system feels like a blunt instrument. It ensures revenue for the state but does little to build trust or foster innovation. The government has achieved control, but it risks losing the very creativity and energy that makes crypto worth regulating in the first place.

The story of crypto taxes in India is a story of control over creativity. By imposing a flat 30% tax and a burdensome TDS, the government has drawn a hard line. Traders must comply, no matter how complex or unfair the rules may feel.

But as crypto continues to grow worldwide, India faces a choice. Does it want to remain a tough regulator with little room for innovation, or does it want to build a framework that encourages safe, fair and dynamic participation?

The answer will shape not only the wallets of traders but also the future of India’s role in the global digital economy. For now, the tax rules of 2025 may look like discipline. To many traders, however, they feel more like a heavy hand.