India Tightens Crypto Rules: Tax, FEMA, and Global Asset Disclosure for Traders
Income Tax and FEMA Rules Governing Crypto in India
Foreign Holdings and Global Best Practices for Compliance
By Our Legal Reporter
New Delhi: December 11, 2025:
The Indian government has stepped up its monitoring of cryptocurrency traders, with reports suggesting that 44,000 traders are under the Income Tax Department’s radar for possible black money violations. As crypto adoption grows, regulators are tightening rules to ensure transparency, prevent money laundering, and protect investors.
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This article explains the laws governing crypto in India, the tax implications of holding crypto abroad, and how violations of FEMA and other rules can impact traders.
Laws Governing Crypto in India
- Income Tax Act, 1961 (Section 115BBH):
- Introduced in 2022, it imposes a 30% flat tax on gains from Virtual Digital Assets (VDAs), including cryptocurrencies and NFTs.
- No deductions allowed except cost of acquisition.
- Losses cannot be set off against other income.
- TDS on Crypto Transactions (Section 194S):
- 1% TDS on all transfers of crypto assets above ₹10,000.
- Ensures traceability of transactions.
- Prevention of Money Laundering Act (PMLA):
- Since 2023, crypto exchanges and intermediaries are covered under PMLA.
- They must maintain KYC records, report suspicious transactions, and cooperate with enforcement agencies.
- Reserve Bank of India (RBI):
- Crypto is not legal tender.
- RBI monitors risks to financial stability and has issued warnings against speculative trading.
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Holding Crypto Abroad – FEMA and Tax Rules
- Foreign Exchange Management Act (FEMA):
- Indians holding crypto in foreign wallets or exchanges must comply with FEMA.
- Any overseas investment in crypto is treated like foreign assets.
- Non-disclosure can attract penalties.
- Income Tax Act – Foreign Asset Reporting:
- Residents must disclose foreign crypto holdings in the Schedule FA of ITR.
- Non-disclosure can lead to prosecution under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015.
- Tax Implications:
- Gains from foreign crypto are taxed at 30% flat rate.
- If converted to INR or transferred, 1% TDS applies.
- Double taxation treaties may apply if income is taxed abroad.
Violations and Penalties
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- FEMA Violations:
- Unauthorized overseas crypto investments can attract penalties up to 3 times the amount involved.
- Black Money Act:
- Non-disclosure of foreign crypto assets can lead to 10 years imprisonment and heavy fines.
- Income Tax Non-Compliance:
- Failure to deduct TDS or report gains can result in penalties and interest.
Global Best Practices India Can Adopt
- United States: Crypto exchanges must report transactions to the IRS.
- European Union: Under the MiCA regulation, crypto service providers must disclose risks and maintain reserves.
- Singapore: Strong KYC norms and licensing requirements for exchanges.
India could adopt:
- Mandatory exchange registration with SEBI.
- Cross-border reporting frameworks to track foreign holdings.
- Investor education campaigns to reduce risks of fraud.
Conclusion
India’s crypto regulation is evolving rapidly. With the Income Tax Act, FEMA, and PMLA now covering digital assets, traders must ensure compliance. Holding crypto abroad requires full disclosure in tax returns, and violations can lead to severe penalties under FEMA and the Black Money Act.
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As the government tightens its watch, the message is clear: crypto trading is legal but must be transparent, taxed, and reported.
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