Crypto & Virtual Digital Asset (VDA) Taxation in India

Income from transfer of Virtual Digital Assets (VDA) — cryptocurrencies, NFTs, and other notified assets — is taxed at a flat 30% under Section 194 of the Income-tax Act, 2025 (erstwhile Section 115BBH of the 1961 Act). The Income-tax Act, 2025 — which from 1 April 2026 replaces the Income Tax Act, 1961 — preserves the flat-rate VDA regime without change, and the Finance Act, 2026 has retained the 30% rate, the 1% TDS under Section 393 (erstwhile Section 194S), and the loss-set-off prohibition. There is no deduction permitted other than the cost of acquisition, no set-off of losses (either inter-VDA or against other heads), and no carry-forward. Additionally, Section 393 of the Income-tax Act, 2025 (erstwhile Section 194S of the 1961 Act) imposes a 1% TDS on the buyer for any VDA transfer exceeding ₹5,999 (professional fees only; govt fees and stamp duty extra). Foreign-exchange holdings of VDAs must be disclosed in Schedule FA of the ITR. Penalties for under-reporting can reach 200% of the tax evaded plus prosecution.

What Qualifies as a VDA

A VDA is defined in Section 2(111) of the Income-tax Act, 2025 (erstwhile Section 2(47A) of the 1961 Act) as: (a) any information, code, number, or token (not Indian/foreign currency) generated through cryptographic means, providing a digital representation of value that can be transferred, stored, or traded; (b) a non-fungible token (NFT) or any other token of similar nature; (c) any other digital asset notified by the Central Government. The definition explicitly excludes gift cards, vouchers, mileage points, reward points, subscriptions, and Indian/foreign currency. Bitcoin, Ethereum, Solana, Polygon, and other major cryptocurrencies are clearly within scope. Stablecoins (USDT, USDC) are also VDAs. NFTs that are essentially intellectual-property licences (digital art) are within scope; certain utility NFTs may be excluded by future CBDT notification.

Calculation of Income — The 30% Trap

Income from transfer of a VDA is computed as: sale consideration minus cost of acquisition. No other deduction is allowed — no transaction fees, no exchange commissions, no internet costs, no professional fees, no infrastructure costs. This is dramatically different from how other capital gains are computed. Cost of acquisition for cryptocurrencies received through staking, mining, airdrops, or hard forks is the fair market value on the date of receipt, which itself is taxable under Section 92 of the Income-tax Act, 2025 (erstwhile Section 56(2)(x) of the 1961 Act) at slab rates (treated as gift or other-source income). This 'double tax' on staking rewards is a frequent source of taxpayer error. Loss on transfer of one VDA cannot be set off against gain on another VDA, against any other capital gain, or against any other head of income.

TDS Under Section 393 of the Income-tax Act, 2025 (erstwhile Section 194S of the 1961 Act) — 1% on Every Transfer

Effective 1 July 2022, the buyer of a VDA must deduct 1% TDS on the consideration if it exceeds ₹50,000 in a year (₹5,999 (professional fees only; govt fees and stamp duty extra) for non-specified persons). For peer-to-peer transactions, the buyer is the deductor. For exchange-mediated transactions, the exchange is the deductor (per CBDT Circular 13/2022). The TDS must be deposited by the 7th of the following month and a quarterly return in Form 26QE must be filed. Failure to deduct attracts disallowance under Section 35 of the Income-tax Act, 2025 (erstwhile Section 40(a)(ia) of the 1961 Act), interest under Section 397 (erstwhile Section 201 of the 1961 Act), and penalties under Section 476 (erstwhile Section 271C of the 1961 Act). Most Indian exchanges (CoinDCX, WazirX, etc.) handle this automatically; foreign-exchange users (Binance, Bybit) must manage it themselves — a major compliance trap.

Schedule VDA in ITR — What to Disclose

From AY 2023-24, ITR-2 and ITR-3 contain a dedicated Schedule VDA requiring disclosure of: date of acquisition, date of transfer, cost of acquisition, sale consideration, and income on each transfer. Aggregation across the year is not permitted — each transaction must be reported individually. For high-frequency traders, this may run into thousands of rows. Crypto held abroad (on Binance, Bybit, FTX historical, Kraken) must additionally be disclosed in Schedule FA — Foreign Assets — under the LRS framework. Non-disclosure of foreign VDA holdings is a Black Money Act offence with penalties up to 300% and prosecution up to 7 years.

Gifts, Mining, Staking, Airdrops — Taxability

(a) Gift of VDA exceeding ₹50,000 — fully taxable in the hands of the recipient at slab rates under Section 92 of the Income-tax Act, 2025 (erstwhile Section 56(2)(x) of the 1961 Act), except gifts from specified relatives or on specified occasions; (b) Mining rewards — taxable at slab rates as 'income from other sources' on the FMV at receipt; subsequent transfer triggers 30% under Section 194 (erstwhile 115BBH); (c) Staking rewards — same treatment as mining; (d) Airdrops and free token grants — FMV at receipt taxable at slab rates; (e) Hard forks — value of new token taxable at slab rates; (f) DeFi yield (lending, liquidity provision) — taxable at slab rates as other income.

Common Mistakes and Penalties

The most frequent errors we see: (1) treating VDA losses as deductible against salary or business income (not allowed); (2) netting losses across coins (not allowed — each transfer is separate); (3) deducting exchange fees from gain (not allowed); (4) failing to disclose holdings on Binance/foreign exchanges in Schedule FA (Black Money Act applies); (5) not deducting TDS on P2P purchases above the threshold; (6) not declaring staking and airdrop receipts at FMV (slab tax applies); (7) classifying NFT trading as business income to claim expenses (CBDT considers all VDA income as Section 194 (erstwhile 115BBH) irrespective of intent). Penalty under Section 439 (erstwhile Section 270A of the 1961 Act) for under-reported income is 50% (200% if mis-reported); prosecution under Section 481 (erstwhile Section 276C of the 1961 Act) may apply for tax evasion above ₹25 lakhs.

How Virtual Auditor Delivers This

Virtual Auditor's CA-CS-IBBI Valuer team handles crypto & virtual digital asset (vda) taxation in india as an integrated engagement — no hand-offs between firms, single point of accountability, fixed-fee transparency. CA V. Viswanathan (FCA, ACS, CFE, IBBI RV) personally reviews every engagement deliverable. Offices in Chennai, Bangalore, and Mumbai serve clients across India. Free 30-minute scoping consultation available — no obligation.

Get Started — Book a Consultation

Call +91 99622 60333 or email support@virtualauditor.in to schedule a free 30-minute consultation with CA V. Viswanathan. No obligation. We will give you a clear scope, timeline, and fixed-fee quote within 24 hours of the call.