A trader opens his Binance app and sees a portfolio full of crypto he has been holding for months. A friend tells him the government is now taxing holdings and that people could face massive penalties if they do not declare everything. Panic sets in.
At the same time, another trader has a completely different concern. He has been trading crypto futures on Binance all year, never withdrew a rupee to his bank account, and assumes that because no money left the exchange, there is probably no tax to pay.
Both are reacting to the same problem: misinformation.
Where Most Crypto Tax Confusion Begins
Over the past few years, crypto tax discussions in India have become crowded with half-truths, screenshots taken out of context, and rumours that spread faster than the law itself. One week, the claim is that wallets are being taxed. Next week, it is when Binance accounts are automatically reported. Then comes the warning that undisclosed holdings attract huge penalties.
Merely holding crypto, whether in a private wallet or on an exchange like Binance, is not a taxable event in India. But the moment you sell, swap, or close certain trades, tax consequences can arise, even if not a single rupee is withdrawn to your bank account.
That distinction is exactly where many traders get confused. And it is the reason two people can have crypto worth the same amount, yet one owes tax while the other owes nothing at all.
Case 1: Holding Crypto vs Taxable Crypto Activity
The trader who asked this question was trying to reconcile several things he had read: that a new budget introduced 60% tax on undisclosed gains, that holdings in wallets and exchanges would now be assessed, and that the withdrawal-to-INR trigger he had previously relied on was somehow gone.
Here is the accurate picture.
Holding crypto is not a taxable event. It never was, and it still is not. Section 115BBH taxes the transfer of a virtual digital asset: the moment you sell, swap, or otherwise dispose of it. Sitting on Bitcoin in a Binance account or a hardware wallet while the price rises from ₹30 lakh to ₹80 lakh creates zero tax liability. The unrealised gain does not trigger anything until a disposal occurs.
The 70% penalty applies to undisclosed income, not to holding. The penalty provision introduced under the Finance Act covers income that was earned but not declared, meaning you sold crypto, realised a gain, and did not report it in your ITR. The penalty applies to the undisclosed income, not to the holding itself. Holding crypto without declaring it is not a violation. Having sold crypto and not reporting the gain is.
The 60% figure the trader saw is likely a reference to Section 115BBE, which taxes unexplained income at 60% plus a 25% surcharge (producing a 78% effective rate). This applies when you cannot explain the source of an investment. For example, if you held Bitcoin acquired through an undocumented P2P trade, you cannot show where the purchase money came from. It is not triggered by holding, but by being unable to explain an investment during a scrutiny assessment.
To be direct, if you are holding crypto in a wallet or an exchange, you owe nothing right now. The tax clock starts the moment you dispose of the asset.
Activity | Taxable? |
Holding Bitcoin on Binance | No |
Holding ETH in a hardware wallet | No |
Price rising while you hold | No |
Selling, swapping, or converting | Yes |
Closing a futures position at a profit | Yes |
Not disclosing a past sale in your ITR | Penalty risk: yes
|
Case 2: Binance Futures and Taxes
The second trader’s situation is more specific, and the answer is more nuanced. He trades futures occasionally on Binance; all profits stay on the exchange, and nothing has ever reached his bank account. He is not sure whether the tax applies.
It depends on what kind of futures trades he is doing, and yes, for most of them, tax arises at the point of the trade, not at the time of withdrawal.
On holding positions: An open futures position that has not been closed is an unrealised gain. Like holding spot crypto, this creates no taxable event. If the PIPPIN position is up 68%, that gain is not taxable until he closes the position.
On closing profitable positions: This is where the liability arises. When he closes a futures trade at a profit, that is a taxable event under Section 115BBH for USDT-settled perpetuals on Binance. The gain is the difference between the entry and exit prices, multiplied by the position size. The fact that the proceeds stay inside Binance as USDT does not defer this. The disposal happened at the moment of the close.
On funding fees received: If he holds long positions and receives periodic funding payments, those are taxable income in the year each payment is received, regardless of whether they are withdrawn.
The bank account is irrelevant to all of these. India taxes Indian residents on global income. The trigger is the economic event – the close of the trade, the receipt of the funding payment – not the movement of money into a domestic bank account.
Futures activity | Taxable? | When |
Open position, unrealised profit | No | Not until closed |
Closed position at a profit | Yes | In the financial year of the close |
Closed position at a loss | No tax, but loss cannot offset other gains | Year of close |
Funding fees received | Yes, as income from other sources | Year of each payment |
Profits sitting in USDT on Binance, not withdrawn | Already taxable from when the positions closed | Financial year of the close
|
The second trader has likely been building a tax liability every year he has been trading actively, without a bank withdrawal ever being necessary.
What Both Traders Are Missing
Both traders were operating under the same foundational belief: that tax in India tracks the money to the bank account. This belief feels true because it matches how salary tax, interest income, and most traditional investment income work in India. The money arrives somewhere visible, and tax follows the arrival.
Crypto broke this logic in 2022 with the introduction of Section 115BBH. The trigger is the transfer of the VDA, the disposal event, not the arrival of money in a bank. For most people who came to crypto before 2022, this represents a genuine conceptual shift that was never clearly communicated.
The 1% TDS deduction on Indian exchanges actually helps here, because it creates a built-in signal: every time a TDS deduction appears in Form 26AS, it confirms that a taxable event occurred. Binance deducts no TDS and reports nothing to the ITD, so Binance traders receive no such signal. The silence can feel like confirmation that nothing taxable happened. It is not.
What Both Traders Should Actually Do
The first trader: Nothing urgent. If you are holding crypto and have not sold anything, you have no immediate tax obligation. If you have sold in prior years and not declared the gains, that is where the risk lies, and a revised or updated return under Section 139(5) or 139(8A) is the correct path.
The second trader: Pull the full Binance Futures transaction history and identify every closed position across every financial year. Each profitable close is a separate taxable event that should appear in Schedule VDA. If funding fees were received, those need to be declared as income from other sources. This reconstruction is the starting point before any filing decision can be made.
Sign up on KoinX to generate your Binance Futures tax report in minutes.
Binance Futures exports do not produce India-compliant tax reports. The raw data is there: every closed futures trade, every funding payment, every date and amount, but converting it into Schedule VDA entries with the correct INR value for each date requires pulling historical exchange rates for each individual event. Doing this manually for two or three years of active trading is not realistic.
The practical path is to integrate the Binance account with KoinX. Once the integration is completed, KoinX automatically pulls the full futures history, converts every closed position to its INR equivalent as of the trade date, and separates funding fee income from trading gains.
Once the data is in, generate the tax report with KoinX in a single click. If you want to self-file, download the Schedule VDA output and use it to fill in the income tax portal under e-File > Income Tax Return > ITR-2 or ITR-3 > Schedule VDA. If you would rather hand the whole thing to a professional, KoinX’s plan assigns a dedicated CA to your case after the report is generated; you do not have to do anything beyond that point.
For a trader who has been active for two or three years without filing, this process might surface a liability that was never tracked. But knowing it exists before a notice arrives is significantly better than the alternative, and the conversation with the CA becomes about what to do rather than about spending two weeks reconstructing what happened.
For the complete framework of every taxable event under India’s VDA rules, the crypto tax India guide covers every scenario. For traders who have been active on foreign exchanges and are unsure of their full position, the crypto tax audit triggers guide explains what the ITD can currently see.
