Cryptocurrency & VDA Taxation Under the Income-tax Act, 2025 — Complete Guide

Last Updated: 15 April 2026  |  Applicable From: Tax Year 2026-27 (1 April 2026 onwards)  |  Reference: Income-tax Act, 2025 (30 of 2025), as amended by Finance Act, 2026; Sec 2(111) definition; Sec 194S equivalent TDS

India’s position on cryptocurrency and VDAs has evolved from wary observation (pre-2018) through a central bank restriction (2018–2020), a Supreme Court reversal (March 2020), and finally the introduction of a dedicated statutory tax regime in the Finance Act, 2022. The Income-tax Act, 2025 preserves and reinforces this regime. VDAs are legally taxable in India, but they are not legal tender, and the tax rules are deliberately punitive — designed to discourage speculation while still allowing the asset class to exist.

This guide covers every rule a VDA holder needs to know for tax year 2026-27: the legal definition, the 30% rate and how to compute it, the notorious “no set-off” rule, the 1% TDS regime, the treatment of mining, staking, airdrops, gifts, foreign exchanges, and Schedule VDA disclosure in the ITR. Crypto investors, NFT traders, Web3 founders, and chartered accountants advising them will find the authoritative position for the first tax year under the new Act.

Table of Contents

1. VDA definition under Sec 2(111)
2. The 30% flat tax rate
3. Computation of VDA income
4. No set-off, no carry-forward of losses
5. 1% TDS under the Sec 194S equivalent
6. Mining, staking and airdrops
7. NFT taxation
8. Gifting and inheritance of VDAs
9. Foreign exchanges and Schedule FA
10. Schedule VDA in the ITR
11. Practical planning tips
12. Expert Insight
13. Key Takeaways
14. Frequently Asked Questions

1. VDA definition under Sec 2(111)

The 2025 Act defines VDA in four inclusive clauses. The broadest and most important clause covers any information, code, number or token, not being Indian or foreign currency, generated through cryptographic means or otherwise, functioning as a store of value, unit of account, or medium of exchange. This language is intentionally wide — it captures Bitcoin, Ethereum, Solana, stablecoins, and every altcoin in existence. It also covers any future cryptographic token whose economic function fits the description.

The second clause specifically covers non-fungible tokens (NFTs) and any “token of similar nature, by whatever name called”. The third clause gives the Central Government power to notify any other digital asset as a VDA. The fourth clause covers crypto-assets on distributed ledger technology.

What is not a VDA: Indian rupee, foreign currency, gift cards or vouchers, loyalty points, and digital representations that are purely internal tokens of a company (unless notified). The Central Government may also exclude specific digital assets from the definition by notification — this power has been used sparingly.

2. The 30% flat tax rate

Any income arising from the transfer of a VDA is taxed at a flat 30% plus applicable surcharge and 4% health and education cess. The rate is:

• Fixed — not subject to slab rates regardless of the taxpayer’s total income
• Independent of holding period — no long-term vs short-term classification, no indexation, no concessional LTCG rate
• Applicable to all persons — individuals, HUFs, firms, LLPs, companies, AOPs, BOIs, trusts — without distinction
• Not subject to any basic exemption — even an individual whose total income is below ₹2.5 lakh pays 30% on VDA gains from rupee one
• Not reduced by rebate under the Sec 87A equivalent — the rebate is specifically disallowed for VDA income

3. Computation of VDA income

What counts as sale consideration? The gross amount received on transfer of the VDA — in fiat currency (INR or foreign) or in kind (another VDA, goods, or services, valued at FMV).

What counts as cost of acquisition? The amount actually paid to acquire the VDA. If acquired for cash, the cash price. If acquired by swap, the FMV of what was given up. If acquired as a gift, the donor’s cost. If acquired by mining/staking/airdrop, the FMV at receipt (which was already taxed as VDA income at receipt).

What does NOT count as deduction:

• Exchange brokerage, platform fees, gas fees, network fees
• Electricity, internet, cooling costs for mining
• Hardware depreciation (mining rigs, ASICs)
• Consulting fees or accounting fees
• Software or wallet subscription costs
• Insurance premiums on crypto holdings
• Any Chapter VIII deduction (Sec 80C, 80D, 80G equivalents)

4. No set-off, no carry-forward of losses

Perhaps the most punitive rule under the 2025 Act’s VDA regime is the complete prohibition on loss utilisation:

• No intra-VDA set-off: A loss on Bitcoin cannot be set off against a gain on Ethereum, even in the same tax year.
• No inter-head set-off: A VDA loss cannot be set off against salary, house property, PGBP, capital gains on other assets, or any other Income from Other Sources.
• No carry-forward: VDA losses lapse at the end of the tax year. They cannot be carried forward to any future tax year, unlike business losses (8 years) or capital losses (8 years).

5. 1% TDS under the Sec 194S equivalent

Any person paying consideration for the transfer of a VDA is required to deduct 1% TDS at source before making payment, under the Sec 194S equivalent of the Income-tax Act, 2025. Key points:

• Threshold: ₹50,000 per tax year for “specified persons” — individuals or HUFs not subject to tax audit whose sales/turnover/receipts do not exceed ₹1 crore (business) or ₹50 lakh (profession) in the preceding tax year. ₹10,000 per tax year for all other persons.
• Exchanges: Indian crypto exchanges deduct 1% TDS automatically on every sell order above threshold. The TDS is reflected in Form 26AS and claimable as credit against the 30% tax.
• Peer-to-peer transfers: In peer-to-peer trades, the buyer is responsible for deducting TDS. Failure results in interest and penalty.
• In-kind transactions: TDS applies even when consideration is not in fiat — for example, a crypto-to-crypto swap. The paying party must gross up and pay the TDS in INR.
• No TDS on mining/airdrop/staking: TDS only triggers on transfer, not on receipt. Mining rewards, airdrops, and staking rewards do not attract 194S TDS at the point of receipt, but the underlying income is still taxable at 30%.

6. Mining, staking and airdrops

Mining: When you successfully mine a block and receive a new coin, the fair market value of the coin on the date of receipt is taxable as VDA income at 30%. Cost of acquisition of the mined coin is nil (as no cash was paid). Electricity, hardware, internet, cooling — none of these can be deducted against the mining income. When the mined coin is subsequently transferred, the FMV previously taxed becomes its cost of acquisition for the second taxable event.

Staking: Staking rewards are treated similarly — FMV at receipt is taxable at 30%, cost is nil at receipt, and FMV becomes cost for the subsequent transfer. The same treatment applies to liquidity pool rewards, yield farming returns, and similar DeFi yield.

Airdrops: Airdropped tokens received without paying anything are treated as VDA income at FMV on receipt. When the airdropped token is later transferred, FMV at receipt becomes the cost. Gift rules (₹50,000 threshold) typically do not apply because the VDA-specific regime prevails, but practitioners should take professional advice in edge cases.

7. NFT taxation

NFTs are explicitly included in the VDA definition under Sec 2(111)(b). The same rules apply:

• Flat 30% tax on transfer gains
• Only purchase cost deductible (not minting gas fees, not creator royalties paid to secondary platforms)
• 1% TDS on transfer above threshold
• No set-off or carry-forward of losses
• Creator royalties received on secondary NFT sales are taxable at slab rates as PGBP or Other Sources, NOT at 30% (the 30% rate applies only to transfer of the NFT itself by its owner)

8. Gifting and inheritance of VDAs

A VDA received as a gift from a non-relative is taxable as Income from Other Sources under the ₹50,000 gift rule if the FMV exceeds ₹50,000 in a tax year. Gifts from relatives, on marriage, by inheritance, and from registered charitable institutions are exempt.

When the recipient subsequently transfers the gifted VDA, the donor’s original cost becomes the cost of acquisition (step-up basis is not granted). The holding period rules do not matter because VDA income is taxed at a flat rate regardless of holding period.

Inherited VDAs: the legal heir steps into the shoes of the deceased — the deceased’s cost becomes the heir’s cost. On subsequent transfer by the heir, 30% tax applies on the gain.

9. Foreign exchanges and Schedule FA

Indian residents holding VDA on foreign exchanges (Coinbase, Binance, Kraken, Bybit, etc.) or in self-custody wallets tied to foreign addresses must disclose these holdings in Schedule FA (Foreign Assets) of the ITR. Non-disclosure is a serious offence under:

• The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 — carries penalties up to 300% of tax and prosecution
• The Income-tax Act, 2025 — disallowance of foreign losses, penalty for misreporting under Chapter XXI

10. Schedule VDA in the ITR

Schedule VDA was introduced specifically to capture VDA income. Every VDA transaction must be reported with:

• Date of acquisition
• Date of transfer
• Sale consideration
• Cost of acquisition
• Gain amount

The total from Schedule VDA flows into the overall income computation and is taxed at 30%. Pre-filled data from Indian exchanges is available through the AIS, but foreign exchange transactions and self-custody trades must be entered manually. See also our ITR forms comparison guide.

11. Practical planning tips

• Maintain transaction-level records. Every buy, sell, swap, mine, and receive must be logged with date, asset, quantity, FMV in INR, and source wallet/exchange.
• Reconcile monthly. Don’t wait for tax season. Reconcile your exchange and wallet transactions against your bank statements every month.
• Time transfers carefully. Since losses cannot offset gains even within VDA, the timing of a loss-making exit is irrelevant for tax — it won’t save you tax either this year or any future year.
• Avoid peer-to-peer unless necessary. The TDS compliance burden falls on the buyer in P2P, which is hard to manage.
• Don’t forget Schedule FA. Foreign exchange holdings must be disclosed separately. The Black Money Act bite is much worse than the Income-tax Act bite.
• Consult a professional for complex situations. DeFi, LP tokens, wrapped tokens, cross-chain bridges, and governance token airdrops all raise interpretation issues.

Expert Insight

Key Takeaways

• VDA is defined in Sec 2(111) of the Income-tax Act, 2025 and includes cryptocurrency, NFTs, and notified digital assets
• The Act commenced on 1 April 2026 — first tax year is 2026-27
• Flat 30% tax on VDA gains regardless of holding period or total income
• Only cost of acquisition is deductible — nothing else
• No set-off of VDA losses against any other income (including other VDAs)
• No carry-forward of VDA losses — they lapse at year end
• 1% TDS under the Sec 194S equivalent on every VDA transfer above threshold
• Mining, staking, airdrop rewards taxed at FMV on receipt; FMV becomes subsequent cost
• Foreign exchange holdings must be disclosed in Schedule FA under the Black Money Act
• Schedule VDA in the ITR is the dedicated disclosure location

Frequently Asked Questions

Related guides: Income-tax Act, 2025 — Complete Guide · Capital Gains Tax Guide · TDS Rate Chart 2026-27 · Set Off and Carry Forward of Losses · New ITR Forms · Penalties and Interest