Crypto Tax in India: How Bitcoin ETFs Can Help Save Profits and Maximize Returns
2025-06-10
India’s tax regime has been challenging for crypto investors since April 2022. Under Section 115BBH, all crypto gains—whether short-term or long-term—are taxed at a flat 30%, accompanied by a 4% health and education cess.
A further challenge: a 1% Tax Deducted at Source (TDS) applies to every transaction over ₹50,000, regardless of gains or losses.
Crypto losses cannot be set off or carried forward, unlike equities and mutual funds. This makes direct cryptocurrency investment expensive and unrewarding.
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Why Bitcoin ETFs Offer a Tax Edge
Bitcoin Exchange-Traded Funds (ETFs), especially those based abroad and bought via India’s Liberalised Remittance Scheme (LRS), provide an alternative path to crypto exposure with significantly better tax treatment:
1. Classified as Capital Assets, not Virtual Digital Assets (VDAs):
Bitcoin ETFs are treated akin to foreign mutual fund units, not crypto.
2. Preferential Long-Term Capital Gains (LTCG) Tax
ETF units held for over 36 months qualify for tax under Section 112—just 20% plus indexation benefits. In contrast, direct crypto gets the flat 30%.
3. No 1% TDS on Exits
ETF transactions abroad don’t attract the 1% TDS under Section 194S.
4. Set-Offs and Carry-Forward
Losses from ETF sales can offset gains in other capital assets and be carried forward for up to 8 years under Indian rules—unlike crypto losses.
Tax experts estimate Bitcoin ETFs can save Indian investors 40–60% in taxes compared to direct crypto holdings.
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Risks & Considerations with Bitcoin ETFs
Using Bitcoin ETFs isn’t without caveats:
1. Forex & Transaction Costs
Buying foreign ETFs via LRS incurs foreign exchange and brokerage fees of 0.5–1%.
2. Tax Collected at Source (TCS)
Investing over ₹7 lakh under LRS invokes 5% TCS, though it's adjustable against final tax liability.
3. Regulatory Status
Indian regulations do not yet recognize or regulate Bitcoin ETFs. Approval by SEBI could change this.
4. Holding Requirements
Investors must hold ETF units for at least 36 months to access LTCG benefits. Selling earlier applies regular slab rates—potentially up to 30%.
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How ETF Taxation Compares with Crypto & Equity
Equity investments gain better treatment under Indian law. ETF-based Bitcoin exposure bridges that gap for crypto investors.
India Crypto Tax 2025 Developments
Ahead of the 2026–27 financial year, India’s Income Tax Bill proposes allowing limited one-time set-off of long-term capital losses against short-term gains. While helpful, this still does not benefit crypto losses, which remain non-deductible under current VDA taxation.
Industry voice grows stronger: crypto exchanges like CoinSwitch urge reduced transaction taxes (TDS/TCS) to foster domestic trading—over 90% of trading has shifted offshore since the 30% crypto tax was implemented.
Practical Steps for Indian Crypto Investors
To optimize returns via Bitcoin ETFs, follow these guidelines:
1. Use LRS to invest in US/Canada-based ETFs
Choose funds that track Bitcoin spot prices, e.g., Grayscale Bitcoin Trust (GBTC).
2. Hold for 36+ months to qualify for LTCG benefits and indexation under Section 112.
3. Report investments properly: Disclose ETF sales under Schedule CG; claim indexation benefit while filing ITR.
4. Avoid periodic trading—short-term gains may trigger high slab tax rates.
5. Note untaxed investments: investments from under ₹7 lakh through LRS may not incur TCS.
6. Stay updated on regulation: LRS thresholds and SEBI guidelines may change.
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Final Takeaway
In India’s current climate, direct investing in crypto is heavily taxed and restrictive. Bitcoin ETFs, though not a silver bullet, offer a legal, tax-efficient alternative for exposure to crypto price trends.
By leveraging foreign ETFs and holding them long-term, Indian investors can reduce their tax burdens significantly, enjoy loss-offset flexibility, and avoid TDS complications.
Remaining cautious about forex costs, regulatory developments, and holding timelines ensures this strategy delivers maximum benefit.
Read more about Bitcoin (BTC):
Bitcoin Price (BTC), Market Cap, Price Today & Chart History
FAQs
Q: Can I claim crypto losses in India?
No—losses from crypto (VDAs) cannot be set off or carried forward under current law.
Q: What tax applies to Bitcoin ETFs in India?
Long-term capital gains are taxed at 20% plus indexation, given a holding period of over 36 months.
Q: Is TDS applied when I sell ETFs?
No 1% TDS applies to Bitcoin ETF sales. However, LRS transactions above ₹7 lakh may incur 5% TCS, which is adjustable.
Q: When does short-term ETF gain get taxed?
If sold before 36 months, ETF gains are taxed per your income tax slab, potentially up to 30%
Disclaimer: The content of this article does not constitute financial or investment advice.
