Here's the mental trap: "no transfer, no gain, nothing to report." The tax part of that sentence is correct. The reporting part is not. The moment your Bitcoin sits on an offshore exchange, you are legally holding a foreign asset — and that triggers a disclosure duty that has nothing to do with whether you made money. Below is what actually applies, split into the two tracks that most people wrongly treat as one.
Two separate obligations, one common mistake
The single biggest misunderstanding is treating "tax liability" and "disclosure obligation" as the same question. They're governed by different laws, judged on different timelines, and one of them can hurt you even when your tax bill is exactly ₹0. Here's the fork:
That right-hand branch is the one that catches people out — and it's the one this note focuses on.
Left branch: what tax law actually says during a hold
30% flat, only on transfer
Section 115BBH taxes gains on Virtual Digital Assets at a flat 30% (plus surcharge and 4% cess) — but only when you sell, swap, or exchange. A genuine buy-and-hold position with zero transfers in the year owes zero capital gains tax for that year.
Almost nothing is deductible
Platform fees, wallet storage costs, advisory fees — none of it can be set off or added to cost. Only the direct, verifiable purchase price counts as your cost basis.
TDS stays asleep
Section 194S TDS applies on transfer of VDAs. With no domestic P2P clearing and no sale, it simply doesn't activate.
No loss set-off either
Even in years you do transact, VDA losses can't be set off against other income or carried forward — a separate quirk worth knowing before you assume normal capital-gains rules apply.
Right branch: Schedule FA — the part people skip
An offshore exchange is a foreign custodial entity. The moment your Bitcoin sits there, you are — in the eyes of Indian tax law — holding a foreign asset located outside India. For a Resident and Ordinarily Resident (ROR) individual, that means disclosure under Schedule FA of the ITR is mandatory. Not optional, not linked to profit, not waived because you "didn't do anything" with it.
The calendar trap nobody expects
Indian income tax runs April–March. Schedule FA doesn't. It runs on the calendar year (January–December) immediately before the assessment year — a completely different clock ticking inside the same tax return.
Priya, an ROR based in Guwahati, bought ₹8 lakh worth of Bitcoin on a foreign exchange in March 2025 and hasn't touched it since.
Her income tax computation for FY 2025-26 shows nil capital gains — correct, since she hasn't sold anything.
But because she held that Bitcoin for part of calendar year 2025, she is still required to report it under Schedule FA in her ITR for AY 2026-27 — initial value, peak balance during 2025, and closing balance as on 31 December 2025. Skipping this because "there was no gain" is exactly the assumption that costs ₹10 lakh.
What exactly goes into the form
Offshore crypto doesn't have its own row in the ITR's foreign-asset tables. In practice it's reported under Table A3 (Foreign Equity/Debt/Financial Interest) or, more conservatively, Table D (Other Immovable Property/Assets Outside India) — converted to INR using the SBI Telegraphic Transfer Buying Rate on the relevant dates.
| Field | What you actually enter |
|---|---|
| Initial value | Actual purchase price in INR, on the exact acquisition date |
| Peak balance | Highest fair market value the holding touched during the calendar year, in INR |
| Closing balance | Value as on the last moment of 31 December of that calendar year |
| Gross proceeds / income derived | Zero, for a pure hold — no staking, airdrops, or interest earned |
Black Money Act: where the real risk actually sits
Get the tax computation wrong and you owe interest on the shortfall. Get Schedule FA wrong — miss it, misstate it, understate it — and you've stepped into the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, a far harsher regime than an ordinary tax default.
| Provision | What happens |
|---|---|
| Section 43 penalty | ₹10,00,000 flat — per fiscal year, for the omission alone. It does not matter whether the asset made money or what it's worth. |
| Section 50 prosecution | Willful non-disclosure can escalate to criminal prosecution under the Act, separate from the monetary penalty. |
Funding the account: FEMA and the LRS ceiling
Getting money onto the exchange in the first place has its own rulebook. Under RBI's Liberalised Remittance Scheme (LRS), resident individuals can send up to USD 250,000 per financial year abroad for permissible purposes. RBI has stayed visibly cautious about remittances earmarked for speculative crypto purchases, and many Authorised Dealer banks block LRS transfers flagged for offshore crypto platforms outright.
Trying to route around an AD bank's filters — indirect transfers, international card instruments — opens up a separate and material FEMA compliance problem of its own. Every permitted remittance needs clean Form A2 documentation, matched to the exchange ledger.
Getting it right: a practical checklist
- File ITR-3. The moment a foreign asset schedule is involved, ITR-1, ITR-2 and ITR-4 are off the table entirely.
- Keep an unbroken paper trail. Exchange onboarding records, monthly and annual account ledgers with timestamps and execution values, and bank records matching every outbound LRS remittance to the exchange ledger.
- Revisit the position every year. If the exchange changes its terms, adds India-specific reporting, or tax authorities widen how they cross-check offshore financial data, your reporting approach needs a fresh look — this isn't a set-once decision.
- Report even in a "quiet" year. No sale, no swap, no income — Schedule FA disclosure still applies if the asset was held during the relevant calendar year.
This note is a general guide for Resident and Ordinarily Resident individuals holding Bitcoin directly on offshore exchanges. It does not cover NRIs, RNORs, entities, or DeFi/staking arrangements, and rates, thresholds, and forms are subject to change by the CBDT and RBI. Speak to us before you file if any of this applies to you.