The Ultimate Guide to Cryptocurrency Taxation in India (2025): Decode the 30% Tax, 1% TDS, and More

The world of cryptocurrency in India has been a rollercoaster, to say the least. From meteoric rises in value to regulatory uncertainty, investors have navigated a complex landscape. The biggest shift, however, came with the Union Budget 2022, when the Indian government finally introduced a specific tax framework for cryptocurrencies and other digital assets of Cryptocurrency Taxation in India.

This wasn’t just a small change; it was a seismic event that redefined how profits, losses, and transactions in the crypto world are treated. The introduction of a high flat tax rate and a new TDS mechanism meant that every crypto investor, trader, and enthusiast had to sit up, take notice, and understand the new rules of the game.

If you’ve ever bought, sold, traded, or even received crypto as a gift, this guide is for you. We will break down every single aspect of the new tax regime for Virtual Digital Assets (VDAs) in India. We’ll demystify the jargon, explain the calculations with clear examples, and guide you through the compliance requirements so you can navigate the world of crypto taxation with confidence.

First Things First: What Exactly is a Virtual Digital Asset (VDA)?

Before we jump into tax rates and deductions, it’s crucial to understand what the government considers a taxable asset. The Finance Act, 2022, introduced a new clause, Section 2(47A), to the Income Tax Act, 1961, which formally defines a Virtual Digital Asset (VDA).

Understanding this definition is key because it determines what falls under this special tax regime.

The Official Definition of a VDA

According to the law, a VDA is defined as:

• Any information, code, number, or token (not being Indian or foreign currency) that is generated through cryptographic means or otherwise.
• It provides a digital representation of value that is exchanged with or without consideration.
• It functions as a store of value or a unit of account, including its use in any financial transaction or investment.
• It can be transferred, stored, or traded electronically.

This is a broad definition designed to be future-proof, covering not just current technologies but also those that may emerge later.

What’s Included in the VDA Category?

The definition is wide-reaching. Here’s a practical list of what is considered a VDA in India:

• Cryptocurrencies: This is the most obvious category. All cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Dogecoin (DOGE), Solana (SOL), etc., are VDAs.
• Non-Fungible Tokens (NFTs): These unique digital assets representing ownership of items like art, collectibles, or music are also classified as VDAs.
• Other Crypto Tokens: This includes governance tokens, utility tokens, and any other token generated on a blockchain or similar technology.

What’s Excluded from the VDA Category?

The government has also explicitly excluded certain items from the definition of a VDA to avoid confusion:

• Indian Currency (INR) and Foreign Currency: Standard fiat money is not a VDA.
• Gift Cards and Vouchers: Pre-paid instruments used to purchase goods or services are not VDAs.
• Mileage Points, Reward Points, and Loyalty Cards: These have no cryptographic element and are excluded.
• Subscriptions to websites, platforms, or applications.

The government also retains the power to exclude any other digital asset from this definition through official notification.

The Heart of the Matter: How Your Crypto Profits Are Taxed Under Section 115BBH

The entire crypto tax framework is built around a new section in the Income Tax Act: Section 115BBH. This section lays down the core rules for how income from the transfer of VDAs is calculated and taxed. Forget everything you thought you knew about capital gains; VDA taxation is a completely different ballgame.

The 30% Flat Tax Rate: No Exceptions, No Slab Benefits

This is the most talked-about feature of the new regime. Any income or profit you make from the transfer (sale, exchange, or trade) of a VDA is taxed at a flat rate of 30%.

Let’s be crystal clear about what this means:

• It doesn’t matter what your total income is. Whether you earn ₹5 lakhs a year or ₹5 crores a year, the profit from your crypto sale will be taxed at 30%.
• You get no benefit from the basic exemption limit. The standard exemption limit (e.g., ₹2.5 lakhs, ₹3 lakhs) does not apply to VDA income. Your very first rupee of profit is taxable.
• Surcharge and Cess are extra. On top of the 30% tax, you will also have to pay the applicable surcharge and a 4% Health and Education Cess. This pushes the effective tax rate even higher.

Example:

Suppose you bought 1 ETH for ₹1,50,000 and sold it a few months later for ₹2,50,000.

• Consideration Received: ₹2,50,000
• Cost of Acquisition: ₹1,50,000
• Profit (Income from VDA): ₹1,00,000
• Tax Payable (30% of ₹1,00,000): ₹30,000
• Add 4% Cess (4% of ₹30,000): ₹1,200
• Total Tax Liability: ₹31,200

The “No Deductions” Rule: Only Your Purchase Price is Allowed

This is another critical and often harsh rule. When calculating your profit from a VDA transfer, the only deduction you are allowed to claim is the cost of acquisition (the price you paid for the crypto).

Absolutely no other expenses can be claimed to reduce your taxable profit. This includes:

• Exchange Fees or Brokerage: The fees you pay to platforms like WazirX, CoinDCX, or Binance are not deductible.
• Wallet Transfer Fees (Gas Fees): The network fees you pay to move your crypto between wallets or exchanges are not deductible.
• Interest on Loans: If you took a loan to invest in crypto, the interest paid on that loan is not deductible.
• Infrastructure Costs: For miners, expenses like electricity, internet bills, hardware costs (GPUs, ASICs), and rent are not deductible from the income generated upon the sale of the mined crypto.
• Salary or Professional Fees: Costs incurred for research, advice, or management are not deductible.

This is a significant departure from how business income or capital gains are calculated, where various related expenses are typically allowed as deductions.

Example (Continued):

In the previous example, let’s say you paid a 0.2% transaction fee on both buying and selling the ETH on an exchange.

• Buy Fee: 0.2% of ₹1,50,000 = ₹300
• Sell Fee: 0.2% of ₹2,50,000 = ₹500
• Total Fees: ₹800

Even though you spent ₹800 on fees, your taxable profit remains ₹1,00,000. You cannot deduct this ₹800. Your tax remains ₹31,200.

The Harshest Rule: No Set-Off of Losses

This is arguably the most punitive aspect of the VDA tax regime and the one that catches most investors off-guard.

Rule 1: VDA Losses Cannot Be Set Off Against Any Other Income

If you make a loss from selling a VDA, you cannot use that loss to reduce your tax liability from any other source of income. You cannot set it off against:

• Salary Income
• Business or Profession Income
• Capital Gains (from shares, property, etc.)
• Rental Income
• Interest Income

Example:

• You have a salary income of ₹12,00,000 for the year.
• You sold Bitcoin and made a loss of ₹2,00,000.
• You cannot reduce your taxable salary to ₹10,00,000. Your crypto loss is completely ignored for the purpose of taxing your salary. You will pay tax on the full ₹12,00,000 salary as per your slab rates.

Rule 2: Loss from One VDA Cannot Be Set Off Against Profit from Another VDA

This is a point of major contention and confusion. Initially, it was believed that you could net your crypto profits and losses (e.g., a profit in BTC could be offset by a loss in DOGE). However, the wording of the law is very specific. It taxes the “income” from the “transfer of any virtual digital asset.”

The prevailing interpretation by tax experts is that you must calculate the profit or loss on each VDA transfer individually. You cannot net the losses from one crypto against the gains of another.

Example:

In a financial year, you make two transactions:

1. Bitcoin Trade: Buy for ₹3,00,000, Sell for ₹5,00,000. Profit = ₹2,00,000.
2. Dogecoin Trade: Buy for ₹1,50,000, Sell for ₹80,000. Loss = ₹70,000.

• Wrong Calculation: Net Profit = ₹2,00,000 – ₹70,000 = ₹1,30,000. Tax = 30% of ₹1,30,000.
• Correct Calculation:
  • The profit of ₹2,00,000 from Bitcoin is taxable. Tax = 30% of ₹2,00,000 = ₹60,000 (+ cess).
  • The loss of ₹70,000 from Dogecoin is completely disregarded. It cannot be used to reduce the Bitcoin profit.

The Final Blow: No Carry Forward of Losses

To round it all off, any loss you make from a VDA transaction cannot be carried forward to subsequent financial years. The loss lapses in the same year it is incurred.

This is in stark contrast to capital losses from stocks or property, which can be carried forward for up to 8 assessment years. With crypto, your loss is your own to bear, with no future tax benefits.

Tracking Every Move: TDS on Crypto Under Section 194S

To ensure that no crypto transaction goes unreported, the government introduced Section 194S, which mandates Tax Deducted at Source (TDS) on the transfer of VDAs.

What is Section 194S and Why Does it Exist?

Section 194S requires the person paying for the VDA (the buyer) to deduct tax at a rate of 1% on the amount paid to the seller.

The primary goal of this TDS is not to collect revenue but to create a trail for every transaction. By collecting the PAN details of the seller, the tax department can easily track who is transacting in crypto and ensure they are reporting the income correctly in their tax returns.

Who is Responsible for Deducting TDS?https://financeandtaxguide.com/understanding-tds-tax-deducted-at-source/

The responsibility lies with the purchaser of the VDA.

However, the rules differ slightly based on who you are and how you transact.

• For “Specified Persons”: This category includes Individuals and Hindu Undivided Families (HUFs) who do not have any business/professional income OR whose business turnover is less than ₹1 crore / professional gross receipts are less than ₹50 lakhs in the preceding financial year.
• For All Others: This includes companies, firms, and individuals/HUFs who do not fall into the “specified person” category.

Threshold Limits for TDS Applicability

TDS is not applicable on every single transaction. It kicks in only after a certain threshold is crossed during the financial year.

• For “Specified Persons”: TDS is applicable if the total value of consideration paid during the financial year exceeds ₹50,000.
• For All Others: TDS is applicable if the total value of consideration paid during the financial year exceeds ₹10,000.

Practical Scenarios for TDS Deduction

This is where things can get a bit tricky. Let’s break down how TDS works in different situations.

Scenario 1: Trading on an Indian Crypto Exchange

This is the most common and simplest scenario. When you sell your crypto on a major Indian exchange (like WazirX, CoinDCX, etc.), the exchange takes care of the TDS deduction. They deduct 1% from the sale proceeds credited to your account and deposit it with the government on your behalf. You can see this deduction in your transaction history and claim credit for it when you file your ITR.

Scenario 2: Peer-to-Peer (P2P) Transactions

If you buy crypto directly from another person without an exchange as an intermediary, the responsibility for deducting TDS falls on you (the buyer). You must:

1. Obtain the PAN of the seller.
2. Deduct 1% TDS from the payment amount.
3. Deposit the TDS with the government using Challan No./ITNS 281.
4. File a TDS return (Form 26Q).

This makes P2P transactions more complex from a compliance standpoint.

Scenario 3: Crypto-to-Crypto Swaps (Transactions in Kind)

What if you trade one crypto for another, say, swapping ETH for BTC? No money is involved, so how is TDS deducted?

Section 194S covers this as well. Before making the payment in kind (i.e., before transferring your ETH), the person responsible for payment must ensure that the tax has been paid.

Both parties in the swap are essentially buyers and sellers. In practice, both parties would need to pay 1% TDS in cash on the Fair Market Value (FMV) of the crypto they are receiving. Exchanges that facilitate such swaps typically have mechanisms to handle this, often by withholding a portion of the crypto itself.

What About Crypto Gifts? Taxation under Section 56(2)(x)

The tax implications don’t stop at buying and selling. Receiving crypto as a gift also has tax consequences, but it’s governed by a different section of the Income Tax Act – Section 56(2)(x), which deals with the taxation of gifts.

When is a Crypto Gift Taxable?

If you receive a VDA (like Bitcoin or an NFT) as a gift, its Fair Market Value (FMV) is considered. If the aggregate FMV of all gifts (including crypto, cash, property, etc.) received from non-relatives in a financial year exceeds ₹50,000, the entire amount becomes taxable.

This income is taxed under the head “Income from Other Sources” and is taxed at your applicable income tax slab rates, not the flat 30% rate under Section 115BBH. The 30% rate only applies when you sell the gifted crypto later.

Example:

A friend gifts you 0.1 BTC. On the day you receive it, its market value is ₹3,00,000.

• Since the value exceeds ₹50,000, the entire ₹3,00,000 will be added to your total income for the year.
• It will be taxed according to your personal income tax slab. If you are in the 30% tax bracket, you will pay tax on this gift.

When is a Crypto Gift Exempt from Tax?

There are specific situations where receiving a crypto gift is completely tax-free:

1. Gifts from Relatives: Any gift received from a “relative” is exempt, regardless of the value. The Income Tax Act has a specific definition of relative, which includes your spouse, siblings, parents, grandparents, children, and their spouses.
2. On the Occasion of Marriage: Gifts received at the time of your wedding are fully exempt.
3. Under a Will or by Inheritance: Crypto inherited from someone is not taxed upon receipt.
4. From any local authority or certain trusts/foundations.

Important Note: When you eventually sell the gifted or inherited crypto, the 30% tax rule will apply to the profit. For calculating this profit, your “cost of acquisition” will be the price the original owner paid for it.

The Murky Waters of GST on Cryptocurrency

While the income tax rules are now clear, the applicability of the Goods and Services Tax (GST) on crypto transactions remains a grey area. The government has not yet issued a clear circular or framework for GST on VDAs, leading to much debate among experts.

The Current State of Ambiguity

As of now, there is no specific GST classification for cryptocurrencies. The main point of debate is whether to classify them as “goods” or “services”. This classification will determine how GST is levied.

Potential GST Implications Being Discussed

Here are the ways GST might be applied in the future:

• Treating Crypto as “Goods”: If treated as goods, buying and selling crypto could attract GST on the entire transaction value, which could severely impact the market. This is considered an unlikely scenario.
• Treating Crypto as “Services”: This is the more likely approach. In this case, GST would not be on the value of the crypto itself but on the service provided by exchanges and platforms.
  • Exchange Fees: The trading fees, deposit/withdrawal fees, and other charges collected by exchanges would be subject to GST, likely at 18%. (Most exchanges already levy this).
  • Mining Activities: Crypto mining could be treated as a supply of services, and the rewards could be subject to GST.
  • Margin/Spread: For platforms that act as dealers, GST could be levied on the margin they earn on the transactions.

The industry is eagerly awaiting a clear framework from the GST Council to remove this uncertainty.

Filing Your Taxes: Reporting Crypto Income in Your ITR

With all these new rules in place, correctly reporting your crypto transactions in your Income Tax Return (ITR) is mandatory. The tax department has updated the ITR forms to specifically capture this information.

Introducing the New “Schedule VDA”

The ITR forms (specifically ITR-2 and ITR-3) now include a dedicated section called “Schedule VDA”. This is where you must report the details of your crypto income. You need to provide a quarterly breakdown of your VDA transfers.

What Information Do You Need to Report?

For each VDA transfer, you must provide:

• Date of Acquisition: The date you purchased the VDA.
• Date of Transfer: The date you sold or exchanged the VDA.
• Cost of Acquisition: The price you paid for it.
• Consideration Received: The sale price you received.
• Income from Transfer: The calculated profit.

You cannot just report a lump-sum figure. You must maintain detailed records to fill out this schedule accurately.

Which ITR Form Should You Use?

• ITR-2: For salaried individuals who have income from capital gains (including VDAs).
• ITR-3: For individuals and HUFs who have income from a business or profession. If your crypto trading is of high frequency and volume, it may be considered a business, requiring ITR-3.

Consulting a tax advisor is recommended to determine the correct form for your situation.

The Golden Rule: Maintain Meticulous Records

If there is one takeaway from this entire guide, it’s this: keep detailed records of every single transaction.

The burden of proof is always on the taxpayer. In case of scrutiny from the tax department, you will need to produce evidence for your calculations.

What Records Should You Keep?

• Transaction Statements: Download the complete transaction history from every exchange you use.
• Bank Statements: Keep records of all money deposited into and withdrawn from crypto exchanges.
• Wallet Addresses and Transaction IDs (TxID): For on-chain transactions, keep a log of wallet addresses and transaction hashes.
• A Detailed Ledger: Maintain a spreadsheet detailing the date, type of crypto, quantity, buy price, sell price, and transaction fees for every trade.

Several crypto tax software platforms are now available in India that can help you consolidate your data from various exchanges and calculate your tax liability accurately.

Conclusion – Cryptocurrency Taxation in India

The introduction of a formal tax framework for Virtual Digital Assets is a clear signal that the Indian government is acknowledging the crypto ecosystem, albeit with a stringent regulatory approach.

The key takeaways for every Indian crypto investor are simple but strict:

• Profit is taxed at a flat 30% (plus cess).
• Only the cost of acquisition is deductible. No other expenses are allowed.
• Losses cannot be set off against any other income, not even against other crypto gains.
• Losses cannot be carried forward.
• A 1% TDS is applicable on transactions above the specified thresholds.

While the tax rates are high and the rules on losses are harsh, compliance is non-negotiable. The digital trail left by crypto transactions makes them easy for tax authorities to track. The prudent approach is to be diligent with record-keeping, calculate your taxes accurately, report them in your ITR, and pay your dues on time.

The world of digital assets is constantly evolving, and the regulations surrounding it will likely continue to change. Staying informed and, when in doubt, consulting a qualified tax professional is the best way to invest responsibly and peacefully in this exciting new asset class.

Disclaimer: This article is for informational purposes only and does not constitute financial or tax advice. Please consult with a professional tax advisor for advice tailored to your specific situation.

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