Decentralised finance, or DeFi, is changing the way people interact with money. From earning rewards on liquidity pools to playing blockchain games for tokens, DeFi has opened up new ways to generate income without relying on banks or central authorities. But with innovation comes regulation, and taxation is part of that conversation in India.
While the Income Tax Department has not released specific rules for DeFi, existing provisions under the Income Tax Act still apply. This means that even if you’re earning tokens through mining, referrals, or browsing-to-earn platforms, you may still owe taxes. And if you later sell or use those tokens, capital gains tax could kick in as well.
In this guide, we’ll help you understand how DeFi transactions are likely taxed in India, how to calculate those taxes, and what to do to stay compliant, even as the legal framework continues to evolve.
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Taxation on DeFi in India
India’s Income Tax Department has not issued explicit guidelines for DeFi transactions. However, the general rules under the Income Tax Act apply based on the nature of income and transaction type. Here’s how different forms of DeFi income may be taxed:
Earning Tokens Through Liquidity Mining or Governance
If you earn new tokens through liquidity mining or governance participation, the value of the tokens received is considered income. This income is taxed at your applicable slab rate under “Income from Other Sources.” The fair market value (FMV) on the day you receive the tokens determines your taxable amount. If you later sell those tokens, any profit will be subject to capital gains tax.
Read More: Biggest Crypto DeFi Projects For 2025
Referral Rewards in DeFi Protocols
Many DeFi platforms offer referral bonuses in the form of tokens. These tokens are treated as income when received and taxed at slab rates under the same “Income from Other Sources” category. The FMV on the date of receipt is added to your annual income.
Play-To-Earn Income from DeFi Games
Games built on DeFi ecosystems often pay players in tokens. Any tokens received from these play-to-earn activities are considered income and taxed accordingly. If your earnings are regular, the income may even fall under “Income from Business or Profession.” Otherwise, they are taxed as IFOS. Selling the tokens in the future results in capital gains tax on any profits earned.
Income from Browse-to-Earn Platforms
Web3-based platforms like Brave or Permission.io pay users for engaging with ads or content. The tokens you receive through these models are treated as income on the day you receive them. You will have to pay taxes as per the slab rates.
DeFi Token Disposal
Even if you paid income tax when you received your DeFi tokens, you may still owe tax later if you sell, swap, or spend them at a profit. In such cases, the difference between the original FMV at receipt and the sale value is taxed at a flat 30%, with an additional 4% cess. This capital gain is reported separately from your income.
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How To Calculate Taxes on DeFi in India?
Tax calculations for DeFi transactions involve two parts: one at the time of receiving tokens, and the other when you sell, swap, or use them. Here’s how to compute both types of taxes step by step.
Calculating Income Tax on DeFi Rewards
When you receive tokens through activities like liquidity mining, browsing, or gaming, the fair market value (FMV) on the day of receipt is considered your taxable income. This income is reported under “Income from Other Sources” and taxed as per your slab. If you’re operating as a full-time DeFi consultant or gamer, it may fall under business income, allowing for certain deductions.
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Taxable Income = Number of Tokens Received × FMV on Date of Receipt |
Example
Rohan earned 100 tokens from a liquidity pool on 15 September 2024. On that day, 1 token was worth INR 50.
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Taxable Income = 100 × INR 50 = INR 5,000 |
This INR 7,500 is added to his total income and taxed according to the tax slab.
Calculating Capital Gains Tax
When you later sell, swap, or spend these tokens, any profit you earn is subject to a flat 30% capital gains tax. The cost of acquisition is taken as the FMV when the tokens were first received.
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Capital Gains = Sale Value – FMV at Receipt |
Example
Now, suppose he sold all 100 tokens on 1 March 2025, when the FMV per token had risen to INR 80.
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Sale Value = 100 × INR 80 = INR 8,000 |
FMV at Receipt = INR 5,000
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Capital Gains = INR 8,000 – INR 5,000 = INR 3,000 |
Tax Calculation
- Capital Gains Tax = 30% of INR 3,000 = INR 900
- Cess = 4% of INR 900 = INR 36
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Total Tax = CGT + Cess = INR 936 |
In total, Rohan pays income tax on INR 5,000 at the slab rate and an additional CGT of INR 936 on the disposal.
Note: As the selling amount is less than INR 10,000, the buyer is not liable to deduct any TDS on this transaction.
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How Can KoinX Help With DeFi Taxes in India?
DeFi earnings are complex to track, especially when rewards come from multiple protocols and chains. KoinX makes this process easier by helping you stay compliant, calculate your tax liability, and generate reports tailored to Indian tax rules. Below are the most relevant features for DeFi investors in India.
Accurate Preview of Capital Gains
KoinX allows you to preview your capital gains from NFT sales even before you make a transaction. This helps you plan better and make smart selling decisions. By understanding your tax obligations early, you can avoid surprises and ensure your profits are optimised throughout the financial year.
Auto-Classification of Transactions
Whether you’re staking, swapping, or earning tokens through liquidity mining, it automatically detects and classifies each transaction. This ensures accurate categorisation for tax purposes and saves you from manually reviewing hundreds of DeFi entries across platforms and wallets.
Reliable Tax Reports
KoinX generates reliable tax reports that include both income and capital gains from your DeFi activities. These reports are formatted to match Indian tax laws and can be downloaded, reviewed, or directly shared with your tax consultant for seamless filing.
Advanced Assistance from Experts
If your DeFi activity spans across high volumes or protocols, it connects you with crypto tax professionals. These experts can guide you on ITR filing, slab-based categorisation, and help you interpret confusing entries in your DeFi reports.
Portfolio Insights
With KoinX, you get a clear view of your entire DeFi portfolio, including total holdings, gains, and pending liabilities. This helps you track your performance, evaluate risk exposure, and make timely decisions across protocols and token types.
Join KoinX today to manage, calculate, and report your DeFi income without stress or errors.
Conclusion
Taxation on DeFi income in India may still lack official guidance, but that doesn’t mean it can be ignored. From receiving rewards to selling tokens, each transaction has a potential tax consequence you must consider.
Staying compliant means tracking your income, calculating capital gains, and reporting everything. KoinX helps simplify this with automated tax reports and smart categorisation for DeFi users. If you are earning through DeFi, then start using KoinX today, which can save both time and penalties.
Frequently Asked Questions
Do I Need To Report Each DeFi Transaction Separately?
Yes, all DeFi transactions must be recorded and reported separately while calculating taxes. Each transaction’s date, type, and value must be tracked for both income and disposal events. Using a crypto tax platform helps automate this process to maintain accurate and compliant records.
Can DeFi Losses Be Set Off Against Other Crypto Gains?
No, losses from DeFi tokens cannot be set off against other crypto gains or regular income. As per current Indian tax rules, losses from one virtual digital asset cannot be adjusted against profits from another. Also, such losses cannot be carried forward to future years.
Do I Have To Pay GST On DeFi Earnings in India?
If you are earning through DeFi as part of a business activity, especially if offering services or consulting, GST registration may be required. In such cases, GST returns must be filed. However, individual investors passively earning tokens are not typically liable for GST unless they cross the threshold for business income.
Can Indian Residents Use Offshore DeFi Platforms Without Tax Trouble?
Indian residents can legally use offshore DeFi platforms, but the earnings must still be reported under Indian tax laws. Using a non-Indian platform does not exempt you from taxes. You must report the income and gains in INR, and failure to do so may attract penalties from the tax department.
Are DeFi Loans or Collateral-Based Borrowing Taxed in India?
Borrowing crypto by locking tokens as collateral is not taxable at the time of borrowing. However, if the collateral is liquidated or rewards are earned on the borrowed amount, taxation may apply. It is important to monitor these events as they may trigger tax liabilities in certain cases.
