The world of crypto fundraising has rapidly evolved, with Initial Coin Offerings (ICOs) and Initial DEX Offerings (IDOs) becoming popular ways for new projects to raise funds. In exchange for supporting these projects early, investors often receive new tokens that may appreciate over time. However, while the opportunity seems promising, understanding the tax obligations linked to these transactions is critical in India.
The Income Tax Department (ITD) views crypto and tokens as Virtual Digital Assets. Taxes apply at the point of earning and when you decide to sell or swap your holdings. Without proper reporting, you could face penalties or missed liabilities. In this guide, we will explain how ICOs and IDOs are taxed in India, how you can calculate the taxes correctly, and how to stay fully compliant while managing your token investments smartly.
Key Takeaways
- Tokens received through an ICO or IDO airdrop are classified as Income from Other Sources under Section 56(2) of the Income Tax Act (ITA) and taxed at your applicable slab rate on the date of receipt.
- Simply participating in an ICO or IDO is not a taxable event, tax is triggered only when you receive or dispose of the tokens.
- Selling, swapping, or spending ICO or IDO tokens triggers capital gains tax at a flat 30% plus 4% health and education cess under Section 115BBH of ITA.
- Losses from failed ICOs or IDOs cannot be set off against any other income, nor carried forward, they can only be offset against gains from other VDA transactions.
- Under Section 194S of ITA, 1% TDS applies on token disposal exceeding INR 10,000 (or INR 50,000 for specified persons).
- Lock-up or vesting periods do not defer tax, the acquisition date for cost basis purposes remains the original IDO purchase date, not the vesting date.
- All ICO and IDO income and disposal gains must be reported under Schedule VDA in ITR-2 or ITR-3.
- The deadline to file ITR-2 is 31st July 2026, and ITR-3 is 31st August 2026.
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How Does ITD Tax ICOs and IDOs in India?
ICOs and IDOs offer investors early access to project tokens, but these transactions are not tax-free. In India, taxes apply at different stages — both when you receive the tokens and when you decide to sell or use them. Understanding how each phase is taxed will help you manage your obligations better.
Tax on Participating in ICOs and IDOs
Simply participating in an ICO or IDO is not a taxable event in India. You do not owe any tax merely by contributing funds or signing up for a token sale. The tax clock starts only when tokens are received or disposed of.
One important nuance arises with lock-up and vesting periods, which are common in IDO structures. Although your tokens may be locked and inaccessible for a period after the IDO, the acquisition date for cost basis purposes is always the original IDO purchase date, not the date the tokens are unlocked or transferred to your wallet.
This means that when you eventually sell the tokens, your capital gain is calculated from the price you paid at the IDO stage, regardless of how long the vesting period lasted.
Tax on Receiving Tokens from ICOs and IDOs
When you receive tokens through an ICO or IDO as an airdrop, it is taxable income. As per Section 56(2) of the ITA, the fair market value of the tokens on the date you receive them must be added to your total income under the “Income from Other Sources” category. It is taxed as per your slab rate for the financial year.
Even if you do not sell the tokens immediately, the receipt of the tokens itself creates a taxable event. You are required to declare the fair market value in your Income Tax Return for the relevant financial year.
Tax on Disposing Tokens from ICOs and IDOs
When you later sell, swap, or spend the tokens you received, the transaction is treated as a disposal of a virtual digital asset. Any profit made from this disposal is taxed under Section 115BBH at a flat rate of 30%, along with a 4% health and education cess. The capital gain is calculated as the difference between the selling price and the fair market value of the tokens when you received them.
Tax on Failed ICOs and IDOs
Not every ICO or IDO delivers on its promise. Some projects collapse entirely, leaving investors with tokens that have little or no market value. Under Section 115BBH(2)(b), losses from failed ICO or IDO tokens cannot be set off against any other income and cannot be carried forward. They can only offset gains from other VDA transactions in the same year. If tokens have no market value, proving the loss without a recorded sale transaction remains a practical difficulty.
TDS on ICOs and IDOs
Under Section 194S of the Income Tax Act, a 1% TDS is deducted at the time of sale if the transaction value exceeds INR 10,000 during the financial year. For specified persons, individuals, or HUFs whose business turnover does not exceed INR 1 crore or professional receipts do not exceed INR 50 lakh, this threshold is INR 50,000. This TDS can be adjusted against your final tax liability when filing your ITR.
How To Calculate Tax on Token Sales in India?
When you deal with ICO or IDO tokens, your tax calculation involves two simple steps — first for receiving the tokens and second for selling or using them. Understanding both parts helps you calculate your tax liability without any confusion.
Step 1: Calculating Tax on Receiving Tokens
The moment you receive tokens from an ICO or IDO, the fair market value of those tokens becomes taxable income. You must add this value to your annual taxable income under “Income from Other Sources” and pay income tax based on your slab rate.
Here’s the formula to find your taxable amount:
Taxable Income = Number of Tokens × FMV per Token at Receipt |
After finding the taxable amount, apply your income slab rate, which can range between 0% and 30%, to compute the final tax payable for that financial year.
Step 2: Calculating Tax on Selling or Trading Tokens
When you eventually sell, swap, or spend your ICO or IDO tokens, you will need to pay capital gains tax. The tax is calculated on the profit earned, which is the difference between the sale value and the fair market value at the time of receipt.
Here’s the formula for that:
Capital Gains = Sale Price – FMV at the Time of Receipt |
Once the capital gain is calculated, you must pay a flat 30% tax on it, plus a 4% health and education cess. Also, if the transaction exceeds INR 10,000 or INR 50,000 depending on the case, a 1% TDS will be deducted automatically by the exchange or the buyer.
Step 3: Calculating TDS
A 1% TDS is applicable on the disposal of crypto received as ICOs or IDOs if the transfer value exceeds the annual threshold of INR 10,000 (or INR 50,000 for specified persons).
TDS = 1% × Total Transaction Value |
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Real-Life Example
A Reddit user on r/CryptoIndia, ToughAd4618, posted a question about five years ago that remains just as relevant today. The user had recently gotten involved in gaming crypto projects and discovered that participating in IDOs and ICOs for upcoming games could be highly profitable, with lower direct exposure to exchange-market volatility.
They had also started exploring NFT marketplaces and noticed that early-stage gaming NFTs tend to appreciate significantly as the games mature. With all this activity building up, they wanted to know — what are the tax implications of IDOs, ICOs, and NFTs, and how do you correctly file taxes on the gains?
Although the question was posted years ago, we are calculating using FY 2025-26 figures to reflect the current tax rules.
Assumptions
To keep the math clear and grounded, we will use the following figures:
- IDO participated in: A gaming crypto project token sale
- Tokens purchased at IDO: 500 tokens at INR 40 per token
- Total IDO investment: INR 20,000
- Bonus airdrop received: 50 tokens at FMV of INR 40 per token on the date of receipt
- FMV of 1 token on date of sale: INR 120
- Total tokens sold: 550 tokens (500 purchased + 50 airdropped)
We are assuming a gaming IDO scenario since the user specifically mentioned gaming crypto projects and NFT marketplaces. The bonus airdrop of 50 tokens reflects a common IDO practice of rewarding early participants. The sale at INR 120 represents a realistic appreciation over the holding period. All figures are calculated as per FY 2025-26 tax rules.
Step 1: Tax on Receiving Airdropped Tokens
The 50 bonus tokens received as an airdrop are immediately taxable as Income from Other Sources at their FMV on the date of receipt.
Taxable Income from Airdrop = Number of Airdropped Tokens × FMV at Receipt
Taxable Income from Airdrop = 50 × INR 40 = INR 2,000
This INR 2,000 is added to ToughAd4618’s total taxable income under Income from Other Sources for FY 2025-26 and taxed at the applicable progressive slab rate.
Step 2: Calculate Capital Gains on Sale of IDO Tokens
When all 550 tokens are sold at INR 120 each, a capital gains tax event arises. The cost of acquisition differs for purchased tokens and airdropped tokens:
- 500 purchased tokens – cost of acquisition = INR 40 per token (IDO purchase price)
- 50 airdropped tokens – cost of acquisition = INR 40 per token (FMV at receipt)
Total Sale Value = 550 × INR 120 = INR 66,000
Total Cost of Acquisition = 550 × INR 40 = INR 22,000
Capital Gain = INR 66,000 − INR 22,000 = INR 44,000
Capital Gains Tax = 30% × INR 44,000 = INR 13,200
Cess = 4% × INR 13,200 = INR 528
Total Tax on Disposal = INR 13,200 + INR 528 = INR 13,728
Step 3: Account for TDS Under Section 194S
Since the total sale value of INR 66,000 exceeds the INR 10,000 threshold, 1% TDS applies at the time of sale.
TDS = 1% × INR 66,000 = INR 660
This TDS can be adjusted against the final tax liability when filing the ITR for FY 2025-26.
How To Report Taxes on ICOs and IDOs Income in India?
ICO and IDO transactions create two separate reporting obligations, token receipts declared under Income from Other Sources, and disposal gains declared under Schedule VDA. Treating both under a single head is a common mistake that can trigger scrutiny during assessment.
Step 1: Pull Together All Transaction Records
Start by compiling a complete picture of every ICO and IDO-related transaction from the financial year. You will need:
- Date and INR value of every token received through an ICO or IDO
- The FMV of each token on the exact date of receipt
- Sale, swap, or spend records for any tokens disposed of during the year, including the sale price and transaction date
- Wallet addresses and on-chain transaction hashes for verification
- Project documentation confirming the token distribution details
Step 2: Classify Each Income Type Correctly
ICO and IDO activity produce two distinct categories of taxable income, each reported under a separate head:
- Tokens received as airdrop: Income from Other Sources under Section 56(2)
- Sale or swap of tokens: Schedule VDA under Section 115BBH
Step 3: Pick the Right ITR Form
Step 4: Complete Schedule VDA and Income from Other Sources
Both sections of your chosen ITR form need to be filled in with precision:
- Under Income from Other Sources, report the total INR value of all tokens received during the year, calculated at FMV on each date of receipt.
- Under Schedule VDA, log each disposal individually, date of acquisition, date of transfer, cost of acquisition, sale proceeds, and the resulting gain or loss.
Step 5: Verify Your TDS Credits
Cross-check all TDS deducted on token sales against your Form 26AS and Annual Information Statement (AIS). If you participated in IDOs on foreign platforms where TDS was not auto-deducted under Section 194S, you are responsible for self-reporting the correct amount. Resolve any discrepancies before submitting your return.
Step 6: Settle Remaining Tax and File
Once TDS credits are reconciled, pay any outstanding self-assessment tax before the filing deadline. Budget 2026-27 has introduced a penalty of Rs 200 per day for late VDA transaction statements and Rs 50,000 for furnishing incorrect information. Unreported ICO or IDO income may be treated as undisclosed income under the Income Tax Act, attracting further penalties.
Deadline To File Taxes The deadline to report and file crypto on taxes for FY 2025-26 is as follows:
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Conclusion
Investing in ICOs and IDOs can offer exciting growth opportunities, but it is important to understand that every token received or sold carries tax obligations. Reporting the correct income and capital gains is crucial to staying compliant with Indian tax regulations.
If you want to manage your token sale taxes easily and file error-free returns, KoinX is the ideal tool. Join KoinX today and enjoy a smarter, more organised way of handling your crypto taxes.
Frequently Asked Questions
Is Participating In An ICO Or IDO Considered An Investment In India?
Yes, participating in an ICO or IDO is considered an investment in a virtual digital asset. While it offers early access to new tokens, any tokens received are taxable as income, and later disposals are taxed as capital gains. Proper reporting is required to stay compliant with Indian tax laws.
Are Airdropped Tokens From ICOs And IDOs Taxable If I Do Not Sell Them?
Yes, the fair market value of the airdropped tokens must be reported as taxable income under “Income from Other Sources” even if you do not sell them immediately. Simply receiving the tokens triggers a taxable event, and you must add their value to your total income for the year.
Can I Offset Losses From Token Sales Against Other Income?
No, under current Indian tax laws, losses from the sale of tokens received through ICOs or IDOs cannot be offset against other types of income like salary or business profits. Losses from virtual digital assets are isolated and cannot reduce your tax liability in any other category.
What Happens If I Transfer ICO Or IDO Tokens To Another Wallet?
Transferring tokens between your wallets does not create a taxable event. Taxes are only triggered when you sell, swap, or spend the tokens. However, you should maintain clear records showing that the transfer was between wallets you control to avoid any confusion during tax filing.
Are Token Presales Before ICOs Taxed Differently?
No, token presales are treated the same as ICO and IDO participations for tax purposes. If you receive tokens during a presale, their fair market value at the time of receipt must be reported as income, and any later profits on disposal are taxed as capital gains at 30%.
