Borrowing rupees against your bitcoin is not a taxable event in India. A liquidation is. The pledge leaves ownership with you, so no 30% tax and no 1% TDS are due when the loan is drawn. If the price falls far enough for the lender to sell your coins, that forced sale counts as a transfer of a virtual digital asset (VDA) and is taxed like any other sale.
Bitcoin-backed rupee loans are now offered to Indian residents. Pledg, for example, lists pilot terms (as of July 2026) of 50% loan-to-value (LTV), 16% a year on a reducing balance, a 2% processing fee plus GST, and loans of ₹10,000 to ₹3,00,000. The question most borrowers skip is simple: is the loan actually cheaper than selling and paying the tax?
What the law says
The rule is section 115BBH of the Income-tax Act, 1961, carried into the Income-tax Act, 2025 from 1 April 2026. It taxes income from the transfer of a VDA at 30% (31.2% with cess), allows no deduction other than cost of acquisition, and allows no loss set-off or carry-forward.
A pledge is not a transfer: you still own the coins and get them back on repayment. Pledg’s own risk disclosure says the same, and adds that a liquidation is a taxable transfer with 1% TDS above the threshold and 30% tax on gains.
Sell or borrow: a ₹6 lakh example
You hold bitcoin worth ₹6,00,000 that cost you ₹4,00,000, and you need ₹3,00,000 for a year. Our calculation, using Pledg’s published pilot terms:
| Sell half | Pledge all, borrow ₹3 lakh | |
|---|---|---|
| Cash in hand | ₹3,00,000 | ₹3,00,000 |
| Taxable gain now | ₹1,00,000 | ₹0 |
| Tax at 31.2% | ₹31,200 | ₹0 |
| TDS deducted (refundable via ITR) | ₹3,000 | ₹0 |
| Interest over 12 months | ₹0 | about ₹26,700 |
| Processing fee + 18% GST | ₹0 | ₹7,080 |
| Total cost | ₹31,200 | about ₹33,780 |
| Bitcoin you still own | half | all (once repaid) |
The interest figure scales Pledg’s own example (about ₹8,900 total interest on ₹1 lakh over 12 months) to ₹3 lakh. Your actual APR is on the lender’s Key Fact Statement.
Break-even: ₹33,780 ÷ 0.312 ≈ ₹1,08,270 of gain. If the coins you would otherwise sell carry more gain than that, borrowing costs less in cash. Below it, selling is cheaper, unless you specifically want to keep the full position.
The liquidation trap
Pledg sends a top-up request at 70% LTV and starts liquidating at 80%, selling just enough to bring LTV back to 50%. On the example above:
- Margin call at 70% LTV: collateral worth about ₹4,28,570, a 28.6% fall in bitcoin.
- Liquidation at 80% LTV: collateral worth ₹3,75,000, a 37.5% fall.
- Coins sold: ₹2,25,000 worth, cutting the loan to ₹75,000 against ₹1,50,000 of collateral.
That sale is a transfer. The coins sold cost you ₹1,50,000 (37.5% of your ₹4 lakh), so the gain is ₹75,000 and the tax is ₹23,400, with ₹2,250 TDS. You pay that tax and the interest, and you lose the coins near a low. Had your cost been above the liquidation price, the loss could not be set off against anything.
Interest won’t cut the tax
Section 115BBH(2) allows only the cost of acquisition as a deduction. The ITAT Agra bench, in Brijesh Poddar vs ITO, allowed interest on money borrowed to buy crypto as part of its cost. A loan taken against coins you already own does not fit that reasoning, so expect no deduction.
What it means for Indian investors
- A crypto loan defers tax. It does not remove it: if you later sell or get liquidated, the 30% rule applies to the full gain.
- Borrow well below the maximum LTV. Every rupee you don’t draw pushes the liquidation price further away.
- Check who the lender is, where the coins are held, and what happens to TDS on a liquidation before you sign.
Run your own numbers with our crypto tax calculator, the TDS calculator and the loss set-off calculator. Live rupee prices are on our Bitcoin INR page. For how loan maths works on tokenised assets, see our Aave tokenized stocks loan piece.
BtcMedia verdict: a bitcoin loan makes sense only when the gain you’d realise by selling is large, the amount is small relative to your holding, and you can top up in a crash. Otherwise the tax you avoid today can come back at a worse price.
FAQ
Is taking a loan against crypto taxable in India? No. A pledge is not a transfer, so no 30% tax or 1% TDS applies when you borrow.
Is liquidation of crypto collateral taxed? Yes. A forced sale is a VDA transfer: 30% plus cess on any gain, 1% TDS, and no set-off for a loss.
Can I deduct loan interest from my crypto gains? Generally no. Only the cost of acquisition is deductible; one tribunal allowed interest on money borrowed to buy crypto.
How we calculated this: Pledg’s published pilot terms (as of July 2026), tax at 30% plus 4% cess under section 115BBH, a hypothetical ₹6 lakh holding with ₹4 lakh cost; written 6 November 2026, 1:20 AM IST. Tax rules change; this is not financial or tax advice.