Bitcoin has given great returns to Indian investors in the last one year – it has seen a jump of almost 123%, and now it is trading close to ₹1 crore. But as big as the earnings are, the bigger problem has been India’s crypto tax regime.
30% flat tax, 1% TDS on every trade, and no set-off for losses – all these together make direct crypto investment a nightmare. Those who are long-term investors are also being treated like speculative traders.
So is there any legal, safe and tax-efficient way to invest in Bitcoin? Of course it is — and its name is Bitcoin ETFs.
Indian Crypto Tax Rules: Understanding is a must
First of all, you must understand what tax is levied in India on investing directly in Bitcoin or any crypto asset:
30% flat income tax on gains
4% cess and surcharge separately
1% TDS on every transaction, whether it is profit or loss
Losses cannot be set off, nor can you carry them forward in the future
Meaning even if you make a loss of ₹10 lakh, you cannot adjust it against any other income. This rule is unfair for long-term investors, where the risk is high and the reward is also uncertain.
Under this regime, every investor is considered a gambler, without any tax planning or efficiency options.
Bitcoin ETF: A Tax-Saving, Legal, and Safe Alternative
Now let’s talk about Bitcoin ETFs – these are exchange-traded funds that track the price of Bitcoin, but their treatment is different in terms of tax.
According to India’s tax laws, these ETFs are generally treated as foreign mutual funds, not as Virtual Digital Assets (VDAs). This is because:
If you hold an ETF for more than 24 months, your gains are taxed at only 12.5% long-term capital gains
If you sell the ETF first, your regular income slab applies to the gains
The best part – no 1% TDS
You can set off the losses and carry forward them to the future
In this way, ETFs give you the opportunity to save up to 60% in taxes – completely legal and accessible through SEBI-regulated brokers.
Futures Trading: A Risky Shortcut That Can Be Expensive
Some people see trading in Bitcoin futures as a loophole, especially those offered by INR-settled platforms. But there are several major risks:
- Regulatory uncertainty — these products are not under the regulation of SEBI or RBI
- Risk of exchange collapse — cases like Vauld and WazirX have shown that when exchanges shut down, Indian investors have no local legal protection
- No clearing or auditing — your money on futures platforms is unaudited and uninsured
- Tax confusion — your income from frequent trading can be treated as “business income”, which means audit, GST, books of accounts — a whole compliance headache
So in the pursuit of short-term profit, you can afford long-term pain.
Bitcoin ETF: The decision of a social investor
In today’s time, when both tax and regulation regarding crypto are tightening, and the risk of collapse of exchanges is also real, then Bitcoin ETFs are the most logical option.
These are available through SEBI-regulated brokers
You can also access them through GIFT City-compliant structures
Your investments are tax-efficient, secure, and compliant
ETFs can be a wealth-creation tool for long-term investors, without unnecessary risk
Conclusion: Work smartly in crypto
If you are an Indian investor who wants to build his wealth by investing in crypto, then choosing the Bitcoin ETFs route instead of direct Bitcoin investment will benefit you on both tax and security fronts.
Earnings are useful only when the tax burden on it is manageable. With Bitcoin ETF you can legally save taxes, avoid TDS, and grow in a regulated environment.
So the next step? Check out Bitcoin ETF options from your broker, and start the journey of smart investing — without sleepless nights and tax stress.