Introduction


The past few years have brought significant change to the Indian financial landscape, particularly with the rapid growth of crypto trading. Now an accepted investment, crypto changed the whole storyline from fringe digital experiment to an unquestionable growth to an alternative asset class. While in 2025 it is obvious that we’ve moved from cryptocurrencies being accepted, it now brings an array of legal uncertainties and taxation challenges. As a result, there is a pressing need to understand the implications for taxation law in respect of digital assets. Lockdowns imposed by the pandemic prompted retail investors and hedge fund managers to consider crypto as a viable investment option. Many of these investors now, whether on their own or through their institutions, find themselves needing a qualified lawyer to advise on the rapidly changing regulatory environment for crypto trading in India.


At first, the Indian government seemed tentative about cryptocurrency legislation, but over time has grown to recognize that more comprehensive regulation is necessary. Therefore, a formal legal framework is now in place and expanding. This blog post by VrinLegal will examine each part of crypto trading and its respective taxation in India, as it pertains to 2025. After reading this detailed analysis, we hope to educate the reader, clarify misconceptions, and present thresholds when to seek legal advice from a lawyer.
Whether a long-time trader or just a curious novice, our extensive review of the regulations, tax laws, and compliance issues will necessarily assist you in legally protected crypto investments.

The Journey of Crypto Trading in India


To appreciate the current state of crypto trading in India, it is worth looking back at how the trading process developed in India. With bitcoin and the broader cryptocurrency world emerging in India in the early 2010s, it was a combination of curiosity and skepticism among Indian users. Although some early adopters began to trade at that time indicated, the typical participants were fairly trim, young, technically savvy men, and some would-be investors from niche outside markets. When overseas trading volumes climbed dramatically over the next few years, so did Indian participation in various forms of crypto trading.

Explaination:


The 2018 disruption was decisive. The tsunami rail here was major, and the Reserve Bank of India (RBI) was the tide. When the RBI provided a circular directing its regulated entities not to deal in virtual currencies, several Indian exchanges and firms subsequently closed when it became clear what the ruling implied for legal activities. With the Supreme Court of India’s 2020 judgment striking down the RBI ban, the industry effectively returned overnight. This was an important milestone in the process of trading cryptocurrencies in India.


After the advent of COVID-19 in 2020, there was a digital asset boom in India. We saw a lot of exchanges coming up, influencers promoting trading, and more retail participation, but there was no taxation law or clarity on legal obligations. As a result, regulators began to discuss how to approach laws for digital assets. Between 2022-2024, the government created temporary laws to observe transactions and levy taxes.
By 2025, crypto trading will have normalized, matured in India. It is now regulated, although it is not like any other asset class. There are burdens of compliance now that didn’t exist before, and a trader in India can run into severe penalties and fines even if they are ignorant of taxation law. Many more investors are seeking a lawyer to receive legal advice and avoid legal repercussions.

India’s Existing Legal Framework on Crypto (As of 2025)


In India, cryptocurrencies are referred to as “Virtual Digital Assets” (VDAs), and since 2025, they have not been recognized as legal tender. This means that one can trade or invest in crypto, but is not allowed to use it as a substitute for Indian currency. The legal treatment of VDAs has taken shape under a variety of acts, such as the Income Tax Act, the Prevention of Money Laundering Act (PMLA), as well as newly proposed digital asset bills.

Explaination:


The Securities and Exchange Board of India (SEBI) is responsible for overseeing the market conduct of crypto exchanges, and the Reserve Bank of India (RBI) takes care of macro-level risks associated with the investment. Both the SEBI and the RBI laid out numerous protocols to ensure protection of investors from frauds, scams, and cyber crimes, as well as prevention of potential financial crimes etc. Alongside KYC, everybody who would like to trade in crypto assets is also expected to perform KYC, link their accounts with their Aadhaar and PAN, and use SEBI-registered platforms.


Additionally, the law requires that investors report their holdings as well as their trades every year. If an investor does not report their holdings and activities, they risk being investigated under the PMLA and the IT Act. So, care should be taken when it comes to reporting profits or losses. Due to the technical nature of these laws, many people are advised to hire a lawyer and seek legal advice—as many areas can be ambiguous—in particular, with large volumes of trading or foreign crypto wallets.
Importantly, taxation law has been updated to include VDAs explicitly. The law now separates short and long-term capital gains, trading income, and business income. Tax authorities have started to employ more blockchain analytics tools to find undisclosed crypto activity, adding another layer of scrutiny that must be dealt with.

Key Regulations of Crypto Trading in 2025


With the regulatory framework established in 2025, crypto trading brings attention to clarity but applies significant obligations on all people and institutions. About crypto exchanges, all regulated exchanges need to be registered with SEBI. They will also need to follow anti-money laundering requirements that require audit trails, disclosure of user data when requested, and full transaction transparency.
In addition, all users need to complete e-KYC before trading. The exchanges also must report high-dollar-value transactions and suspicious activity. This would mean that legal issues could arise if one were to engage in peer-to-peer trades off the platform. And, finally, the RBI now requires banks to monitor accounts linked to crypto wallets and report any unusual activity.


Another significant feature of the new 2025 regulatory regime is the 1% Tax Deducted at Source (TDS) set for all crypto transfers exceeding a specified limit, which will tax a portion of your trade total, before you make any profit. This may seem heavy-handed to a lot of traders, but the measure is seen as necessary to bring the crypto traders into the fold where proper scrutiny occurs.


To make matters more complicated, the regulations require crypto assets to be categorized depending on their type, including (but not limited to) NFTs, utility tokens, and stablecoins; and each category has different taxation rules. Misclassifying assets could also incur fines or, worse yet, prosecution. Consequently, a thorough understanding of potential tax law is essential.
Because of the legal complications now being faced by many traders, most traders and investors now even commonly seek out a lawyer for legal advice before they proceed with a trade. This ultimately protects the trader and gives them some level of coverage in case they are prevented from demonstrating compliance, or face an audit, or worst case, criminal proceedings.

Taxation Law and Crypto: What has Changed in 2025


One of the largest developments in 2025 is the change in the tax laws relative to cryptocurrencies. In the past, the lack of clarity in the tax code resulted in ambiguity about classifying the profit from crypto trading as capital gains or business income.To alleviate this uncertainty, the government created a new chapter to the Income Tax Act that specifically addressed Virtual Digital Assets (VDAs).


Now, profitability in the sale of VDAs is taxed at a flat rate of 30%. It doesn’t matter which income bracket the investor falls into; the rate is flat at 30%. While this seems rigorous, the government has described the crypto space as speculative and notoriously volatile to reinforce the tax rate. The treatment of a trader as an individual investor means that he/she does not get travel expenses, infrastructure, or even transaction fees associated with the trade as a tax deduction. Effectively, the only deduction a trader can argue for is the cost of acquisition, which effectively diminishes the net profitability on trades.


Also, the law also prohibits set-off and carry-forward of crypto losses. This means that if you have a loss on one crypto transaction, you cannot set off or carry that loss against a gain in another transaction. Such treatment is found to be overly harsh by crypto enthusiasts, but the government feels that this framework improves risk behaviour.

Explaination:-


The structure that has caused the most discussion in the tax law is the 1% TDS on all crypto transactions over ₹10,000. The deductibility occurs on transfer and not on profit realization. Therefore, if users are actively trading or executing high volume, they need to be aware of a large amount of both accounting for tax withheld immediately, while there is no clarity or TDS on the net gain following the trade. Additionally, entries from forms submitted for TDS (tax deducted at source) must also be accounted for in income tax returns, even if there has been a net-zero profit or a loss.


Many more individuals are now coming to lawyers for legal advice about determining their liability and structuring their investment, both with their own legal liability and potential limits when it comes to accounting on behalf of others. As clients work through clauses, the law could be requesting disclosure or responses to tax notices, legal advice, through context is critical to navigate a very complex and intricate ecosystem.

Reporting Crypto Income in 2025


As of 2025, Indian tax authorities have put clear frameworks in place that allow individuals to disclose their income from crypto trading. For instance, Income Tax Return (ITR) forms, most notably ITR-2 and ITR-3, now include separate schedules for reporting your Virtual Digital Assets. Taxpayers are required to provide the type of asset, when it was acquired, whether it was serially acquired or disposed, wallet address, and the amount of the transaction in INR currency and crypto (BTC, ETH, etc.).

Explaination:


This will involve a lot of recordkeeping, as tax authorities can look for gaps, mismatches, and lack of completeness. In a case where an individual has a significant number of wallets or trades on several platforms to consider, compliance burdens increase. This is an area of expertise where professional help is needed. Chartered accountants often work with another professional, such as a lawyer, when giving legal advice or ensuring the process adheres to necessary compliance or processes.


Again, if someone earns income from staking, mining, or lending crypto, they will have to classify this as business income. Business income is taxed at a different rate, and it has different audit procedures under the taxation law. As well, if someone earns crypto as a freelancer or an element of their salary, that income should be classified separately, and it likely will attract GST or service tax if applicable.
‍Furthermore, it is important to note that certain prescribed services, such as crypto exchange platforms, will be subject to Goods and Services Tax (GST) when they allow users to exchange crypto. If an exchange platform is charging a fee to execute trades or offer wallets, they will have to pay the 18% GST. Although the exchange platforms generally pass this cost on to users, it will indirectly affect profitability when trading crypto.


Ultimately, whether or not someone disregards compliance on purpose or unintentionally, what can happen is a fine, interest, or better yet, prosecution. Therefore, the best approach is transparency and compliance, to adopt the norm of tax practice and to seek legal advice if there is a concern or uncertainty in the obligations.

The Role of Blockchain Compliance & Audit


India’s regulators in 2025 will adopt blockchain analytics tools to enhance the monitoring and auditing of crypto transactions. Those agencies can utilize these tools to monitor and ultimately forensically analyze cryptocurrency trading activities. These abilities could seek probable leads, track suspicious activities and recover lost or stolen belongings.


The government of India has entered into partnerships with other global organizations to develop systems that can monitor and analyze trading across centralized and decentralized agencies. These systems derive patterns of trading behavior and flag transactions that exceed markers, flagged transactions whose origination addresses are outside the country, and flagged transactions that are trades in privacy coins. Anonymity is no longer an excuse.


All a crypto exchange must do is keep audit logs of every single transaction for 5 years – this is legally binding. If they do not, it can lead to revocation and fines. Additionally, they need to submit compliance reports to SEBI every month and must file forms for any excessive volume or odd trading.


This means that users must report the creation, sale, or purchase of NFTs under the law regarding taxation. Just a single transfer of an NFT can create tax liability if users obtain a legal opinion before use.
Because of the complexity of smart contracts and decentralized apps (DApps), users largely misunderstand their tax obligations. That is why it is so useful for users to consult a lawyer to obtain legal advice before engaging with blockchain platforms. This will lower the risk of not being aware of your obligations and documenting the appropriate materials for an audit.

Penalties for Non-Compliance & Legal Challenges


Under India’s 2025 crypto regime, penalties for non-compliance are potentially serious and multi-layered. These penalties range from a simple fine to a criminal prosecution depending on the degree of the breach. For example, where a taxpayer fails to deduct or deposit TDS, the penalty will be the unpaid amount, plus interest. The authorities may choose to commence criminal action against the taxpayer in terms of Sections 276C or 277 of the Income Tax Act, depending on the seriousness of the infringement This is very important for people using foreign wallets or foreign trading platforms. Existing penalties are hundreds of thousands of rupees with asset seizure, travel bans, and hefty fines also possible.


Aside from tax issues, legal action can also result from customer complaints, especially if the platform tortiously delays withdrawing customer money or mismanages customer funds. This means that anyone dealing with crypto should expect that there is a lawyer who can answer questions and provide legal advice to protect their interests.


In 2024 alone, there were many prominent legal cases concerning crypto scams, misrepresentation, and tax evasions; and courts are clearly siding with regulators with regard to disclosure and due diligence on the part of operators, and for investors and many entrepreneurs it is best to take a proactive, legally compliant path with professional guidance.

International Comparison: How India Fares in 2025


India’s position concerning crypto trading in 2025 is neither an outright ban nor a completely liberalized position, typically described as cautious, but ultimately reasonable. Looking at other global jurisdictions, India occupies a position of striking a balance between regulation and innovation.
India, conversely, applies a flat 30% tax on crypto profits and does not allow loss set-offs, while adding on TDS. The contrasting stance of Singapore and UAE on the international stage has pulled away global crypto talent, because there are zero taxes on capital gains, including digital asset gains. These countries and ideas around protecting consumers and technological innovation supersede the receipt of revenue collection. As a result, several Indian crypto firms have relocated operations to an offshore jurisdiction where the law is not so tough.

By contrast, India prides itself on its requirement for traceability and the effort at risk mitigation. It is a leader in the Asia-Pacific region in enforcement rigor through tools such as blockchain analytics and legislation aimed specifically at Virtual Digital Assets (VDAs).However, Indian crypto users also face an incredibly complex legal landscape. It is important to contact a lawyer for legal advice concerning investing or launching a project in this space.
India’s regulatory environment also offers less legal obscurity than restrictive policies in other countries. The taxation law has cobbled together guidance to provide, at least, something, and not vague crypto policy. Anyone looking for security and predictability would likely make India a reasonable base for crypto trading (and perhaps with strong legal support).

Future Prospects: What Lies Ahead for Crypto Trading in India


Looking forward, opportunities for crypto trading in India remain hopeful despite challenges. There are positive signs to be optimistic about. 2025 saw technological integration leading to the Reserve Bank of India (RBI) General Bank Digital Currency (CBDC), or digital rupee.
Moreover, the Finance Ministry is currently drafting a comprehensive Digital Asset Law, comprising all VDA regulations alongside a comprehensive framework of civil and criminal law that would define what VDAs are, and a centralized licensing regime governing exchanges. The provided law may offer graded taxation based upon transaction type, the nature of the asset, and holding period.

Recent times: Crypto trading in India


At the same time, developments in the blockchain space, such as Decentralized Finance (DeFi), Web3 protocols, and metaverse economies, are pushing new legal boundaries, which will require ongoing updates to taxation law and new compliance mechanisms. Investors participating in DAOs, yield farming, and governance tokens will have to contend with a much more intricate reporting regime.
Other trends are institutional adoption. As banks, insurance companies, and mutual funds start to hold crypto within their portfolios, a more professional approach to regulation will follow. This change will advocate for greater legal clarity and, in turn, make the work of a lawyer as it pertains to legal advice more imperative.


On a more favorable side, we can expect to see an emphasis on public education and digital literacy campaigns. We expect government agencies and private legal institutions like VrinLegal to create structured training and certifications for investors and financial advisors to fill knowledge gaps. This will increase market transparency and, more importantly, aid in mitigating the environmental, fraud, and tax evasion risks of conventional crypto trading.
Nevertheless, challenges persist. Regulatory uncertainty, excessive taxation, and the risk of cybercrime may inhibit newcomers. However, with a sound plan and appropriate legal support, the Indian crypto space is still one of opportunity.

Conclusion


One can say that 2025 has been a watershed moment in India’s approach to crypto trading and tax law. While cryptocurrencies began as unregulated, they have evolved into a heavily regulated legal and financial space. The government is clearly intending to innovate while looking after the best interests of the investor and the fiscal tax world.


Whether it’s the 30% tax on profits, the 1% TDS, the inability to deduct expenses, or the compliance audit, this ecosystem is no longer for casual players. Individuals and entities must treat their crypto activities as other financial investments. This includes understanding the nuances of taxation law, systematic recording of activity, and completing annual reporting requirements.
A lawyer provides a reliable basis for advice and action as the regulatory framework will evolve. They can draft essential documentation, respond to notices, and help you mitigate any risk. At VrinLegal, we empower our clients to have certainty of legal knowledge and action in the evolving world of cryptocurrency law.

That said, non-institutional investors can and will comply with relevant financial laws while still benefiting from them. Legal compliance and awareness will not only protect you, but it will also be common sense as the digital asset economy expands.