Union Budget 2025: Rules for Dealing in Cryptocurrency Taxes and Transactions and Current Scenario

Budget 2025 has introduced stricter regulations for taxpayers involved in cryptocurrency trading. Virtual digital assets like cryptocurrencies and NFTs will now be classified as undisclosed income, subject to higher tax rates. Additionally, taxpayers earning from crypto trading will face expanded disclosure requirements, as reported by The Times of India.

The Union Budget 2025 has strengthened oversight and taxation of cryptocurrency transactions in India. Although the existing tax structure remains the same—30% tax on income from virtual digital assets (VDAs) and 1% TDS on transactions above certain limits—the government has enforced stricter compliance and reporting rules to improve regulation in the crypto sector.

What is a Cryptocurrency?

Cryptocurrency is a form of digital currency that relies on cryptography for security and operates on decentralized blockchain networks. Unlike traditional money issued by governments (e.g., the US dollar or Indian rupee), cryptocurrencies are not managed by banks or central authorities.

Key Features of Cryptocurrency:

1. Decentralized Network – Unlike traditional financial systems controlled by central banks or governments, cryptocurrencies function on a decentralized network. This means no single organization has authority over transactions, reducing the risk of government interference, financial censorship, or manipulation. Decentralization also enhances accessibility, allowing users worldwide to transact freely without intermediaries.

2. Blockchain Technology – Cryptocurrencies rely on blockchain, a digital ledger that records all transactions across a distributed network of computers. This system ensures that every transaction is secure, time-stamped, and immutable, meaning it cannot be altered once recorded. By eliminating the need for a central database, blockchain enhances trust and transparency in financial transactions.

3.Robust Security & Encryption – Cryptographic techniques secure cryptocurrency transactions, making them highly resistant to fraud, hacking, or counterfeiting. Public and private keys authenticate transactions, ensuring only the rightful owner can access their funds. Additionally, cryptography regulates the creation of new currency units, preventing unauthorized generation of digital coins.

4. Fixed or Controlled Supply – Many cryptocurrencies, such as Bitcoin, have a limited supply cap, ensuring scarcity and protecting against inflation. Unlike fiat currencies, which can be printed in unlimited amounts by central banks, cryptocurrencies often have a predetermined maximum supply, coded into their protocol. This scarcity can drive demand and increase value over time.

5. Transparency with Privacy – Every cryptocurrency transaction is recorded on a public ledger, ensuring transparency and traceability. However, while transaction details are visible, the identities of users remain pseudonymous. Instead of personal details, transactions are linked to unique alphanumeric wallet addresses, offering a level of privacy while maintaining accountability in the system.

Current Scenario of Cryptocurrency in 2025

Regulatory measures around cryptocurrency have become stricter, further tightening controls on crypto trading. One key change is that virtual digital assets will now be classified as undisclosed income in search cases, subjecting them to higher tax rates. Previously, crypto trading income was not part of search and seizure procedures, but disclosure requirements have now expanded.

Kunal Vyas, Partner at Gandhi Law Associates, highlights that Budget 2025 introduced Section 285BAA, requiring entities dealing with crypto-assets—such as exchanges and intermediaries—to report transaction details to tax authorities. This reporting obligation aligns with the compliance requirements already imposed on mutual funds, stock exchanges, and other financial institutions.

Aaron Kamath, Leader of the Technology and Commercial Law Practice at Nishith Desai Associates, explains that the Finance Bill 2025 aims to strengthen oversight and curb undisclosed crypto transactions. It does so by expanding the definition of Virtual Digital Assets (VDAs) and requiring entities handling crypto transactions to report them to tax authorities. Additionally, reporting entities will have a 30-day window to correct any errors in their submissions. The Bill also empowers the government to establish rules mandating these entities to register with tax authorities and conduct due diligence to verify the identity of crypto users and owners.

Key Provisions of Section 285BAA for Cryptocurrency in Budget 2025

1. Compulsory Transaction Reporting – Designated entities must report crypto transactions in a specified format within the prescribed timeline.
2. Error Correction Process – If a submitted report is found defective, the entity will be notified and given 30 days (or an extended period) to correct it. Failure to do so will result in the report being considered inaccurate.
3. Penalties for Non-Compliance – Entities that do not submit the required statement on time may receive a compliance notice from tax authorities, demanding submission within a stipulated timeframe.
4. Voluntary Error Disclosure – If a reporting entity later identifies mistakes in its submitted data, it must proactively inform tax authorities and provide the corrected details.
5. Government Regulations & Due Diligence – The Central Government will outline registration requirements for entities, specify the information they must maintain, and establish due diligence procedures to verify crypto users and owners.

Vyas explains that the amendment broadens the definition of Virtual Digital Assets (VDAs) to explicitly cover any crypto-asset that operates on cryptographically secure distributed ledger technology. Currently, income from cryptocurrency trading is taxed at 30%, and this rate will continue for the next financial year. Additionally, strict regulations prohibit traders from offsetting losses from crypto transactions against profits from other crypto trades or any other sources of income.

Final Thoughts

The measures for Cryptocurrency in the Union Budget 2025 demonstrate the government’s commitment to overseeing the fast-growing crypto market, promoting tax compliance, and reducing risks linked to unregulated digital assets. Crypto traders and investors should stay updated on these regulatory changes and comply with the new requirements to prevent legal and financial issues.

Sources: msn.com