30 Jan 2023

Updated: May 2026

Taxation of Virtual Digital Assets (VDA) and Cryptocurrency in India: Complete Guide for 2026

India's tax framework for Virtual Digital Assets (VDAs) — which includes cryptocurrency, NFTs, and other digital tokens — is now well-established following its introduction in the Finance Act, 2022. Yet non-compliance remains widespread, partly due to the complexity of cross-exchange transactions and partly due to ongoing misunderstandings about what constitutes a taxable event. At Regi Tom Antony And Associates, we advise clients — including NRIs with India-linked crypto holdings — on VDA tax compliance.

What are Virtual Digital Assets (VDAs)?

Under Section 2(47A) of the Income Tax Act, 1961, a VDA is defined broadly to include:

• Any information, code, number, or token generated through cryptographic means — including Bitcoin, Ethereum, and all other cryptocurrencies
• Non-fungible tokens (NFTs)
• Any other digital asset notified by the Central Government

Notably excluded: gift cards, mileage points, and traditional fiat currencies.

Tax Rate on VDAs — Section 115BBH

Income from transfer of VDAs is taxed at a flat rate of 30% under Section 115BBH, regardless of:

• Holding period (no distinction between short-term and long-term)
• Nature of income (trading profit, mining income, staking rewards — all at 30%)
• Residential status (applies to residents and NRIs with India-sourced VDA income)

Surcharge and health and education cess (4%) are added on top of the 30% base rate. For most individuals, the effective rate is 31.2% (30% + 4% cess).

No Deduction Except Cost of Acquisition

Section 115BBH explicitly disallows all deductions except the cost of acquisition. This means:

• Exchange fees, transaction costs, mining hardware costs — not deductible
• Interest on loans taken to acquire VDAs — not deductible
• Infrastructure costs for crypto mining — not deductible

Only the actual purchase price (cost of acquisition) can be subtracted from sale proceeds to compute taxable gain.

No Set-Off or Carry Forward of VDA Losses

This is the most punitive aspect of the VDA tax regime. Under Section 115BBH(2)(b):

• Losses from one VDA cannot be set off against gains from another VDA
• VDA losses cannot be set off against any other income (salary, business, capital gains)
• VDA losses cannot be carried forward to future years

Example: If you make ₹5 lakh gain on Bitcoin and ₹3 lakh loss on Ethereum in the same year, you pay 30% tax on ₹5 lakh — the ₹3 lakh Ethereum loss is permanently lost for tax purposes.

TDS under Section 194S

Section 194S requires TDS at 1% on transfer of VDAs in certain cases:

• Exchange-to-exchange or person-to-exchange transactions: The exchange deducts TDS before crediting the proceeds
• Person-to-person (P2P) transactions: The buyer deducts TDS at 1% before paying the seller
• Threshold: TDS applies when aggregate consideration during the year exceeds ₹50,000 (for specified persons — individuals/HUFs with business turnover below ₹1 crore / professional receipts below ₹50 lakh); ₹10,000 for others

TDS deducted by exchanges is reflected in Form 26AS and can be claimed as credit in the ITR.

What Constitutes a Taxable VDA Transaction?

Common taxable events that many users miss:

• Crypto-to-fiat conversion: Selling crypto for INR, USD, or any fiat currency — clearly taxable
• Crypto-to-crypto exchange: Trading Bitcoin for Ethereum is a transfer of one VDA and acquisition of another — the Bitcoin transfer is a taxable event at the market value of Ethereum received
• Using crypto to buy goods/services: Treated as a transfer at fair market value — taxable gain/loss on the VDA used
• Receiving crypto as payment: Fair market value at receipt date is income (taxable as income from other sources or business)
• Mining rewards: FMV at receipt is income; cost of acquisition for future sale calculation is the FMV at receipt
• Staking rewards: Treated similarly to mining rewards — FMV at receipt is taxable income
• Airdrops: FMV at receipt is generally treated as income
• Gifts of VDA: Received as gift are taxable as income from other sources if FMV exceeds ₹50,000 and does not meet exempted gift relationships

ITR Filing Requirements for VDA Income

VDA income must be disclosed in the ITR under Schedule VDA (introduced in ITR forms). Key requirements:

• Report each VDA transaction separately — date of acquisition, date of transfer, cost, sale consideration, and gain
• TDS credit from Section 194S should be claimed in the TDS schedule
• ITR-2 or ITR-3 (depending on other income sources) must be used — ITR-1 cannot be used if you have VDA income

NRI Implications for Crypto Holdings

NRIs with India-linked crypto holdings face additional complexity:

• If VDAs were purchased through an Indian exchange or using Indian bank accounts, the income is likely India-sourced and taxable in India at 30%
• DTAA may provide relief — check if your DTAA covers "digital assets" or whether VDA income falls under the "other income" article (typically taxable only in the country of residence under many DTAAs)
• Foreign crypto holdings acquired abroad by an NRI are generally not taxable in India while the person remains non-resident — but become taxable on return to India as the person becomes resident
• Schedule FA disclosure obligations arise once the NRI becomes resident in India

For NRI crypto tax advisory, visit www.nriblueprint.com.

Frequently Asked Questions

If I hold crypto for years and then sell, is the tax still 30%?

Yes. Unlike equity or property where the holding period determines whether LTCG or STCG treatment applies, VDAs have no such distinction. Whether you held Bitcoin for 1 day or 10 years, the tax on the gain is a flat 30% plus surcharge and cess under Section 115BBH. There is no indexation benefit and no concessional long-term rate.

Are crypto losses from foreign exchanges considered for Indian tax?

If you are an Indian resident, your global income — including gains and losses from foreign exchanges — is taxable in India. However, the set-off restriction under Section 115BBH(2)(b) still applies: losses from one VDA (even on a foreign exchange) cannot be set off against gains on another VDA or any other income. The losses are dead for Indian tax purposes.

How do I calculate cost of acquisition if I bought crypto in multiple tranches?

The Income Tax Act does not prescribe a specific method (FIFO, LIFO, or average cost) for VDA cost computation. In practice, FIFO (first-in, first-out) is the most commonly used and defensible method, as it creates a clear audit trail. Whichever method you use, apply it consistently and document all purchase records — exchange statements, wallet records, and transaction confirmations — as you may need to produce these in an assessment.