Income Tax on Cryptocurrency & Virtual Digital Assets (VDA)

Cryptocurrency taxation in India is deliberately strict, and it catches many investors off guard because it does not follow the familiar capital gains playbook used for stocks or property. There is a flat rate, no favourable long-term treatment, and a hard rule against offsetting losses. Here is exactly how the law treats crypto, NFTs, and other Virtual Digital Assets.

What Counts as a Virtual Digital Asset (VDA)?

The Income Tax Act defines a Virtual Digital Asset broadly to include any information, code, number, or token generated through cryptographic means, and specifically covers cryptocurrencies (Bitcoin, Ethereum, and similar tokens), Non-Fungible Tokens (NFTs), and other digital assets notified by the government. Certain items such as gift cards, mileage points, and subscription vouchers have been excluded from the definition, but for practical purposes, any coin or token traded on a crypto exchange falls squarely within the VDA regime.

The Flat 30% Tax Rate Under Section 115BBH

Income from the transfer of a VDA is taxed at a flat 30% under Section 115BBH, plus applicable surcharge and health and education cess. This rate has been stable since it was introduced with effect from April 1, 2022 and applies uniformly:

• Regardless of your total income slab; even if your other income is below the basic exemption limit, VDA gains are still taxed at 30%.
• Regardless of holding period; there is no distinction between short-term and long-term gains, unlike equity shares or immovable property.
• Regardless of whether the gain arises from investing, trading, mining rewards, staking rewards, or airdrops, once converted or transferred.

No Deductions, No Loss Set-Off

This is the provision that surprises most investors. While computing income from transfer of a VDA, the only deduction permitted is the actual cost of acquiring the asset. Every other cost, including exchange platform charges billed separately, internet or hardware expenses for mining, and interest on funds borrowed to buy crypto, is disallowed.

Even more restrictive is the loss rule: a loss from one VDA transaction cannot be set off against a gain from a different VDA, let alone against salary, business income, or any other head. It also cannot be carried forward to a later year. If you booked a loss on one coin and a profit on another in the same year, you still pay 30% tax on the full profit, with no relief from the loss sitting alongside it.

Section 194S: 1% TDS on Crypto Transfers

Separately from the 30% tax on the gain itself, Section 194S requires 1% TDS to be deducted on the transfer consideration whenever a VDA changes hands. In practice, registered Indian exchanges deduct and deposit this automatically before crediting sale proceeds to the seller.

This TDS is not the final tax; it is credited against your total tax liability when you file your return, similar to TDS on salary or interest. If your actual crypto tax liability is lower than the cumulative TDS deducted across exchanges during the year (uncommon given the flat 30% rate, but possible with small or loss-making portfolios), the excess can be claimed as a refund.

Note: commentary carrying the Income Tax Act 2025 forward generally treats Sections 115BBH and 194S as continuing without a change in substance; at the time of writing, secondary sources had not uniformly settled on their renumbered section citations under the new Act, so we have retained the familiar 1961-Act numbers here and will update this page once the renumbering is confirmed.

Swaps, Airdrops, and Crypto-for-Goods Transactions

A common misconception is that tax only applies when crypto is converted back to rupees. In reality, any of the following counts as a taxable transfer:

• Crypto-to-crypto swaps: Exchanging Bitcoin for Ethereum is treated as disposing of the Bitcoin at its fair value, triggering tax on the gain even though no fiat currency was received.
• Spending crypto on goods or services: Paying for something with crypto is treated the same way as selling it for cash and then paying.
• Airdrops and staking rewards: Generally taxable as income when received (at fair value, typically under "income from other sources"), with the 30% VDA regime applying again on a subsequent transfer, using that fair value as the cost base.

Reporting Crypto Income in Your ITR

Income tax return forms include a dedicated Schedule VDA where every transfer during the year must be reported, including the date of acquisition, date of transfer, cost, sale consideration, and resulting gain or loss. Keeping exchange-wise transaction statements and cost records through the year makes this a routine filing exercise; reconstructing it after the fact from memory rarely goes well when multiple exchanges and wallets are involved.

If you have crypto or NFT transactions to report this year, or are unsure how staking, mining, or an international exchange account fits into this framework, our team can review your transaction history and prepare an accurate Schedule VDA computation before you file. For broader NRI-specific questions on foreign asset disclosure alongside crypto holdings, see our Schedule FA guide.