Taxation of Virtual Digital Assets (Crypto) — Complete Guide

Crypto taxation in India is deliberately strict, and the Income Tax Act, 2025 carries this framework forward largely unchanged in substance, while renumbering the governing section and tightening the reporting net around exchanges.

The Core Rules

•             Flat 30% tax on income from transfer of any Virtual Digital Asset (VDA) — cryptocurrency, NFTs, tokens — regardless of holding period. There’s no short-term/long-term distinction, and no benefit from the basic exemption limit.

•             Only one deduction allowed: the cost of acquisition. No deduction for trading fees, gas fees, mining costs, or borrowing costs.

•             No loss set-off: a loss on one VDA cannot be set off against a gain on another VDA, nor against any other type of income (salary, business, capital gains).

•             No carry-forward: VDA losses cannot be carried forward to future years — they simply disappear for tax purposes.

What Counts as a VDA

The definition covers cryptocurrencies (Bitcoin, Ethereum, and similar), NFTs, and other tokens generated through cryptographic means. The Finance Act 2025 explicitly added “crypto-asset” to the definition, closing any interpretational gaps around newer token types.

TDS on Crypto Transactions — Section 194S

•             1% TDS applies on the transfer of VDAs.

•             On domestic exchanges, the exchange itself deducts and deposits the TDS automatically.

•             On peer-to-peer (P2P) or international/decentralised exchange transactions, the buyer is legally responsible for deducting and depositing the TDS — a rule many casual investors miss.

Taxable Events You Might Overlook

•             Crypto-to-crypto swaps: Swapping Bitcoin for Ethereum is a “transfer” and triggers tax on any gain — even though no fiat currency changed hands.

•             Airdrops and staking rewards: Generally taxed as income at their fair market value on the date of receipt, separate from any later gain on selling them.

•             Gifts of crypto: VDAs received as gifts worth more than ₹50,000 from a non-relative are taxed as “Income from Other Sources” at slab rates; a subsequent sale of that gifted asset still attracts the 30% VDA tax.

Worked Example

An investor buys ₹1,00,000 of Bitcoin and later swaps it for Ethereum when the Bitcoin is worth ₹1,50,000. This swap is a taxable transfer: gain = ₹50,000, taxed at 30% = ₹15,000 — even though the investor never converted to rupees. If the same investor also has a ₹40,000 loss on a separate Dogecoin position, that loss cannot reduce the ₹15,000 tax owed on the Bitcoin-Ethereum swap.

Reporting & Penalties

•             Report VDA transactions in Schedule VDA of ITR-2 (capital gains) or ITR-3 (business income), depending on your trading frequency and intent.

•             Since exchanges now report user transactions to tax authorities, any mismatch between your ITR and exchange-reported data is likely to be flagged automatically.

•             Non-disclosure of VDA income can be treated as under-reporting (50% penalty) or misreporting (200% penalty) under the penalty provisions.

Frequently Asked Questions

Q1. Is there a minimum threshold below which VDA gains aren’t taxed? No — every rupee of gain from a VDA transfer is taxable at 30%, with no minimum exemption threshold, unlike most other income categories.

Q2. Can I offset crypto losses against my salary income? No — VDA losses cannot be set off against any other head of income, including salary, business income, or even other capital gains.

Q3. What if I trade crypto frequently as a full-time activity — is the rate still 30%? Yes — regardless of whether the income is classified as capital gains or business income for reporting purposes, the flat 30% rate under Section 115BBH (successor provision under the new Act) applies uniformly.

Reflects the framework applicable from Tax Year 2026-27, consistent with the Finance Act 2022 crypto tax regime.