DeFi in India
This is general information, not legal, tax, or financial advice. It is not a recommendation to use any protocol or buy any asset. Verify the current rules with a qualified local professional and the official regulator before acting.
Using decentralised finance is not banned in India, but there is no dedicated DeFi law and the space is unregulated as of January 2026. The tokens involved are virtual digital assets, so a gain on a disposal is taxed at a flat 30 percent under Section 115BBH, a 1 percent tax at source can apply under Section 194S, and rewards from lending, staking, or yield can be taxable as income when received. No regulator supervises the protocols themselves, so the consumer protections that come with a registered exchange do not apply. The Income Tax Department administers the tax.
How India treats DeFi
India has no specific framework for decentralised finance. There is no law that prohibits interacting with a lending protocol, a decentralised exchange, or a yield product, and there is no law that licenses or supervises them either, as of January 2026. The result is that DeFi sits in a legal but unregulated position. The tokens that move through DeFi are virtual digital assets under the Income Tax Act, so the tax rules that apply to any crypto disposal apply here too, regardless of whether the trade happens on a centralised exchange or through a smart contract. What changes with DeFi is not the tax, but the absence of an intermediary that handles compliance and offers recourse if something goes wrong.
Registration applies to platforms, not to protocols
The Financial Intelligence Unit India registers centralised virtual digital asset service providers as reporting entities under the Prevention of Money Laundering Act, and in January 2026 it issued updated anti money laundering and counter financing of terrorism guidelines for these providers. That registration regime is built around entities that hold customer funds or run an exchange, not around permissionless protocols. So while the exchange you use to move between rupees and crypto is supervised, the DeFi protocol you then interact with generally is not. The Reserve Bank of India has repeatedly cautioned about the risks of unregulated crypto activity, and those cautions apply with particular force to DeFi, where there is no counterparty to hold accountable.
How DeFi income is taxed
The virtual digital asset rules apply to DeFi without softening. A gain on selling, swapping, or otherwise disposing of a token is taxed at a flat 30 percent under Section 115BBH, plus a 4 percent cess and any surcharge, with only the cost of acquisition deductible, current to June 2026. A swap of one token for another inside a DeFi protocol is itself a disposal, so it is a taxable event. A 1 percent tax deducted at source under Section 194S applies to transfers above the threshold, and where there is no registered intermediary to deduct it, the responsibility can fall on the buyer. Losses on virtual digital assets cannot be set off against other income or carried forward, so a losing position does not reduce the tax on a winning one. Rewards from lending, staking, liquidity provision, or yield can be taxable as income when you receive them, and a separate gain or loss arises when you later dispose of those tokens. Goods and services tax has applied to platform service fees since July 2025, which adds to the cost of using a centralised service around a DeFi trade. Because the treatment of specific DeFi mechanics can be complex and is not fully settled, verify your position with a qualified chartered accountant before filing.
Acting through registered on and off ramps
Most people reach DeFi by first converting rupees to crypto on a centralised platform, then moving funds to a self custody wallet. Using a platform registered with the Financial Intelligence Unit India for that on ramp keeps the fiat leg inside the supervised system and gives you the statements that help with reporting. Several registered exchanges serve India residents as of January 2026. The DeFi activity that follows is your own responsibility, including the record keeping and the tax, since no protocol will do that for you.
Compare exchanges available to India users
Registered platforms serving India residents include CoinDCX, CoinSwitch, ZebPay, Mudrex, and Binance. See the registered on and off ramp options side by side, then verify the current position with the platform and the regulator before you sign up.
Compare available exchangesRegulator and sources
- Income Tax Department and the Central Board of Direct Taxes (CBDT) the virtual digital asset definition and Sections 115BBH and 194S on the 30 percent tax and the 1 percent TDS, current to June 2026.
- Financial Intelligence Unit India (FIU) registration of centralised virtual digital asset service providers and the January 2026 anti money laundering guidelines.
- Reserve Bank of India (RBI) its public cautions on the risks of unregulated crypto activity.
Frequently asked questions
Is DeFi legal in India?
Using decentralised finance is not banned in India, but there is no dedicated DeFi law and the activity is unregulated as of January 2026. The income is still taxable as a virtual digital asset, and protocols that are not registered with the Financial Intelligence Unit India sit outside the supervised system, so the consumer protections of a registered platform do not apply.
How is DeFi taxed in India?
Gains on disposing of a virtual digital asset through DeFi are taxed at a flat 30 percent under Section 115BBH, and a 1 percent TDS can apply under Section 194S, as of January 2026. Rewards from lending, staking, or yield can be taxable as income when received. This is not tax advice, so verify before filing.
Does the 1 percent TDS apply to DeFi trades in India?
Section 194S applies a 1 percent tax deducted at source to transfers of virtual digital assets. On a registered exchange the platform usually deducts it, but on a peer to peer or DeFi trade with no intermediary the responsibility can fall on the buyer, as of January 2026. Confirm your position with a professional.
Can I offset DeFi losses in India?
No. A loss on a virtual digital asset cannot be set off against other income or carried forward under Section 115BBH, as of January 2026. Each disposal is assessed on its own, so a losing DeFi position does not reduce tax on a winning one. This is not tax advice, so verify before filing.
Who regulates DeFi in India?
No single authority regulates DeFi in India as of January 2026. The Income Tax Department sets the tax treatment, the Financial Intelligence Unit India registers the centralised platforms used as on and off ramps, and the Reserve Bank of India has repeatedly warned about the risks of unregulated crypto activity.
Is using a self custody DeFi wallet legal in India?
Yes. There is no Indian law that bans holding a self custody wallet or interacting with a DeFi protocol as of January 2026. The tax obligations on any disposal still apply, and you carry the full reporting responsibility yourself when no registered platform is involved.
Related pages
Risk and change note: crypto rules change frequently and can shift with little notice. DeFi is unregulated in India and carries the added risk of no intermediary to turn to. The positions above carry an as of date and were last reviewed on June 21, 2026. Confirm the current rules with the named regulator and a qualified local professional before you act.
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