P2P Crypto Trading Tax in India

India taxes income from Virtual Digital Assets under Section 115BBH of the Income-tax Act 1961, introduced by the Finance Act 2022 and effective from Assessment Year 2023-24.

The rate is a flat 30% plus applicable surcharge and 4% cess, regardless of your income slab. A separate provision, Section 194S, requires 1% TDS on the transfer of a VDA, in force since 1 July 2022.

The tax position is the same; the compliance is not

Profit from P2P trading is VDA income taxed at 30% under Section 115BBH, exactly as it would be on an exchange. What changes in P2P is who carries the compliance obligation.

TDS in a P2P trade

On an Indian exchange, the platform deducts TDS under Section 194S and deposits it. In a genuine peer-to-peer transfer there is no such intermediary, and the obligation to deduct falls on the person paying the consideration — the buyer.

Where both parties are transferring VDAs, both may have an obligation. Where the counterparty is not deducting, that does not remove your own position, and the income remains taxable regardless of whether TDS was deducted by anyone.

The bank account risk

This is the practical issue P2P traders actually encounter, and it is not a tax issue at all.

P2P trades settle through ordinary bank transfers, typically UPI or IMPS. If a counterparty pays you with funds that are later traced to fraud, your account can be frozen as part of the investigation — a lien placed at the request of a police cyber cell, often from a different state. This happens to traders who did nothing wrong, purely because tainted money passed through their account.

• Keep complete records of every P2P trade: the platform order ID, counterparty details, the chat log and the bank reference.
• Prefer platforms with escrow and dispute resolution over direct arrangements.
• Be wary of counterparties offering prices materially better than the market — an unusual premium is often paying for the risk of the money's origin.
• Consider using a separate account for P2P activity so a freeze does not immobilise your primary banking.

If an account is frozen, the resolution generally runs through the investigating officer of the originating complaint rather than your own bank, which is why documentation of each trade matters so much.

Is P2P legal in India?

P2P trading is not prohibited. Crypto is legal to hold and trade in India, is taxed under a defined statutory regime, and exchanges operate under FIU-IND registration. What P2P does is move compliance and counterparty risk onto the individual, which is a practical burden rather than a legal bar.

For most investors, using a FIU-registered exchange with INR deposit avoids both the TDS question and the frozen-account risk entirely, at the cost of a somewhat worse rate.

What a defensible P2P record looks like

If an account is frozen or a query arrives, the difference between a short inconvenience and a long problem is the quality of the record. For each trade, keep:

• The platform order ID and a screenshot of the completed order showing both parties.
• The full chat log from the trade, which platforms typically retain only for a limited period.
• The bank reference number for the transfer and the counterparty's account details as shown.
• The date, time, rate and quantity.
• Your KYC status on the platform at the time.

Export these periodically. Platforms restrict access to old orders, and an account that is itself restricted may leave you unable to retrieve the evidence when you most need it.

If your account is frozen

1. Establish which complaint caused the lien — banks can usually identify the reference and the originating police station.
2. Contact the investigating officer with your trade documentation showing the transaction was a genuine, documented sale.
3. Keep the bank informed in writing, but understand that the bank generally cannot lift a lien placed at an investigator's request.
4. Take legal advice early if the amount is material; these matters are often handled in a state other than your own.

The recurring lesson from these cases is that documentation gathered at the time of the trade resolves them and documentation gathered afterwards often cannot.

Why the rate premium exists

P2P rates are frequently better than exchange rates, and it is worth understanding what that premium compensates for. It is payment for taking on counterparty risk, settlement risk and the possibility of a frozen account. A rate that looks unusually generous is generally pricing an unusually large version of one of those risks.

Related guides

• Crypto tax in India: the complete guide
• Crypto tax calculator for India
• Tracking crypto for Indian tax records
• Best crypto exchanges in India

This page is educational and not tax advice. Indian tax law changes and individual circumstances differ. Confirm your position with a qualified chartered accountant before filing.