Digital assets such as cryptocurrencies, NFTs, and tokens—collectively known (VDAs)—have become popular among Indian investors. As more people trade, as Virtual Digital Assetsinvest, or earn via digital assets, understanding the taxation framework is essential. Introduced in Budget 2022 and firms up in subsequent budgets, India’s VDA taxation rules remain strict, but clear regulation has appealed to both taxpayers and crypto platforms. Let’s explore latest rules ontaxation of virtual digital assets in India or how crypto gains are taxed and what that means for everyday investors. Definition of Virtual Digital Asset” is covered in the Income Tax Act 1961 under Section 2(47A) which includes all crypto assets like cryptocurrency, NFTs and tokens and under section 115BBH its gains taxed @30%.
Let’s check here a complete 2025 guide with latest rules that how to taxed digital assets or cryptocurrency trading income or gains.
The Legal Basis: How VDAs Are Defined
The term “Virtual Digital Asset” was officially defined in the Income Tax Act 1961 under Section 2(47A). It includes cryptocurrencies like Bitcoin, Ethereum, decentralized finance tokens, and NFTs. This distinction clarifies that VDAs are not legal tender, but are taxable digital assets, enabling clear separation for regulatory purposes.
Flat 30% Tax on Crypto Gains
The most important rule is straightforward: all profits from VDAs are taxed at a flat 30%, plus applicable surcharge and 4% health and education cess. This rate applies uniformly—whether you hold a token for minutes or years. The government deliberately excluded distinctions between short-term and long-term holding periods to discourage speculative flippers. Thus, whether it’s a gain from trading, selling, gifting, or spending your crypto, the 30% rate applies.
No Deductions or Set-Offs Allowed
Unlike regular capital assets, for VDAs you can only deduct the cost of acquisition when calculating taxable gains. Expenses like transaction fees and exchange charges are not allowed. You also cannot offset losses from crypto against any other income (such as salary or rent), or even cross-offset losses within crypto assets. So, if you earn ₹5 lakh from bitcoin and lose ₹2 lakh from another token, the 30% tax still applies on ₹5 lakh without considering the loss.
1% TDS on Crypto Transactions
To improve transparency and enable tracking for Digital Assets (Crypto) Taxation in India, Budget 2022 introduced a 1% Tax Deducted at Source (TDS) on VDA transfers under Section 194S, effective July 1, 2022. Exchanges are required to deduct this at source on every crypto sale once transactions exceed ₹10,000 for salaried individuals or ₹50,000 for businesses per year.
The 1% rate ensures authorities get early visibility of crypto transactions. Though some proposed reducing this rate in 2025, the government decided to retain it, citing compliance needs.
Additional Crypto-Related Taxes
Other taxable crypto-related events include:
Gifts and Airdrops: Virtual assets received as gifts or airdrops worth over ₹50,000 are taxed as Income from Other Sources at 30%.
Staking and Mining Rewards: Though still under debate, rewards from staking or mining VDAs are likely taxable as income at your applicable slab rate. If you later sell such assets at a profit, the 30% crypto tax also applies.
Crypto-for-Crypto Swaps: Exchanging one VDA for another triggers the 30% tax on the gain (calculated based on fair market value on the day of swap).
Spending VDAs: If you use crypto to buy goods or services and your token has appreciated, the profit is taxed at the flat rate.
Filing: Using Schedule VDA in online ITR
Crypto gains must be reported in Schedule VDA of ITR forms. For individuals:
- ITR‑2: Suitable if crypto is an investment (casual or infrequent trading).
- ITR‑3: Required if you’re professionally trading, mining, staking, or running a business via crypto
The Schedule VDA requires details for each transaction in online ITR filing: date, type, cost, sale value, and profit. Pre-filling of data (like TDS and Form 26AS) is now supported for ITR‑2 via the online portal as of July 18, 2025.
Why India’s Regime Is One of the Toughest
India’s 30% flat rate is among the highest crypto taxes globally. The combination of no deductions, no loss adjustments, and 1% TDS on every trade make this tax system stringent. Experts point out that cryptocurrency turnover in India has shifted offshore due to this regime, and the emergence of Bitcoin ETFs in regulated markets is seen as a tax-efficient alternative
ETF options mimic crypto price movements but avoid the 1% TDS and flat 30% rate, although gains are taxed as normal capital gains.
Compliance and Penalties
Non-compliance risks are real. If you miss reporting crypto gains:
- You’ll owe 20% interest on owed tax plus penalties.
- Under‑reporting can incur fines between 50%–200% of evaded tax and possible imprisonment up to 7 years, depending on severity.
- Failing to deposit TDS leads to up to 6 months imprisonment or interest at 15% and penalties
With CARF coming (aligned with OECD standards), crypto service providers will report user transactions globally, reducing evasion opportunities
Tools to Simplify Crypto Tax Calculations
Given the complexities, crypto tax calculators like Koinly, CoinDCX Tax, and Giottus Tax Report are popular. They connect to your wallets, calculate gains under VDA rules, generate ITR-ready summaries, and track TDS deducted—all reducing errors. Many tools now support Schedule VDA and align with ITR‑2/3 forms.
A Look Ahead: Regulation and Reform
While the taxation framework remains unchanged post-Budget 2025, policymakers are considering reforms. The crypto industry lobbies for reduced TDS rates and lower tax burdens to revive domestic. With global standards like CARF and rising crypto ETF options, the market may see changes in reporting and structure.
However, for now, digital assets in India remain heavily taxed and tightly monitored—payer compliance and clarity are key.
Final Thoughts
India’s crypto taxation is among the most rigorous worldwide, marked by a flat 30% tax, 1% TDS, single deduction allowance, and no loss set‑offs. While this ensures transparency and revenue, it places a heavy compliance burden on investors and traders.
If you’re involved with crypto—even occasionally—understanding the tax implications is crucial. Keep detailed transaction records, use a trusted tax calculator, file the correct ITR form online, andvirtual digital assetsincome reportvia Schedule VDA.
This ensures you’re compliant, prepared for audits, and avoiding penalties. And if you’re actively trading or earning through crypto, consolidating transactions and working with a tax professional is wise. With crypto’s growing place in the economy, staying informed will help you benefit without legal surprises.
FAQs on taxation of VDA
1. Is income from crypto currency taxable in India?
Yes, income from crypto currency is taxable under the Income Tax Act. It is taxed at a flat 30% rate, excluding surcharge and cess, under Section 115BBH for Virtual Digital Assets (VDAs), without allowing any deductions other than the cost of acquisition.
2. What is the definition of a Virtual Digital Asset (VDA)?
As per Income Tax Act Section 2(47A), a VDA includes cryptocurrencies, NFTs, or any digital asset notified by the government. It excludes Indian or foreign fiat currency, and other notified exceptions. Bitcoin, Ethereum, and other cryptos fall under this category.
3. How is crypto tax calculated in India?
Crypto is taxed at 30% on the gains (sale price – cost of acquisition) whether it is short term or long-term capital gain. No deduction for expenses (like internet, mining cost, etc.) is allowed. Also, 1% TDS is deducted on transfer amount exceeding ₹10,000 per year under Section 194S.
4. Is loss from crypto trading allowed to be set off?
No. Under Section 115BBH, losses from one VDA cannot be set off against income from any other VDA or any other head. Additionally, such losses cannot be carried forward to future years. It’s a zero-benefit scenario for crypto-related losses.
5. Do I need to file ITR if I only traded in crypto?
Yes. If your income (including crypto) exceeds the basic exemption limit, you must file an online Income Tax Return (ITR). Even if crypto is your only income source, tax compliance is mandatory, especially due to TDS and audit tracking.
6. What is the 1% TDS on crypto transactions?
As per Section 194S, a 1% TDS is deducted on transfer of crypto assets if the value exceeds ₹10,000 (₹50,000 for some individuals). The buyer is responsible for deducting and depositing this TDS to the government. It applies even in peer-to-peer transfers.
7. Which ITR form should I use for crypto income?
For FY 2024-25 (AY 2025-26), use ITR-2 or ITR-3 depending on your income type. ITR-2 applies for capital gains from crypto; ITR-3 is for those with business/professional income including frequent crypto trading. Salaried individuals can use ITR-2 for capital gains from VDAs.
8. Is mining income also taxable in India?
Yes, if you mine cryptocurrency, the value of coins received is considered taxable business income on the date of receipt. If later sold, capital gains tax applies on the difference between sale price and value when first received. GST may also apply.
9. Are crypto-to-crypto transactions also taxable?
Yes. Crypto-to-crypto swaps (like Bitcoin to Ethereum) are treated as a transfer and taxed accordingly. You must calculate the fair market value in INR of the asset received and pay 30% tax on the capital gain, even if no fiat is involved.
10. What records should I maintain for crypto taxation?
You should maintain detailed records of every transaction—date, amount, exchange, wallet ID, INR value, fees, and TDS deducted. These are necessary for calculating gains, verifying TDS credit, and defending your position during audits. Most crypto exchanges now provide annual reports too.
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