Every rupee of profit from Bitcoin, Ethereum, or any cryptocurrency is taxed at a flat 30% in India — with no loss set-off, no deduction for trading costs, and no carry-forward. Introduced by the Finance Act 2022 under Section 115BBH, this framework has not changed in Budget 2025 and applies in full for FY 2025-26. This guide covers the complete picture: the legal rules, the grey areas, where to report in ITR, and the practical issues CAs encounter with crypto clients.
1. What Is a Virtual Digital Asset (VDA)?
Section 2(47A) of the Income Tax Act defines a Virtual Digital Asset as any information, code, number, or token — not being Indian or foreign currency — generated through cryptographic or any other means, that provides a digital representation of value and can be transferred, stored, or traded electronically. The definition explicitly includes:
- Cryptocurrencies (Bitcoin, Ethereum, Solana, and all altcoins)
- Non-Fungible Tokens (NFTs)
- Any other digital representation of value as may be notified by the Central Government
Stablecoins pegged to the rupee or dollar also fall under VDA. Foreign currencies in digital form (e.g., digital dollar tokens) are excluded. When in doubt, if it trades on a crypto exchange and is not legal tender, treat it as a VDA.
2. Tax Rate — Section 115BBH
The core rule is deliberately simple: all income from the transfer of a VDA is taxed at 30%, regardless of the taxpayer's total income or tax bracket. Add 4% Health and Education Cess, and the effective rate is 31.2%.
| Tax Component | Rate |
|---|---|
| Base tax rate (Section 115BBH) | 30% |
| Health & Education Cess | 4% on tax |
| Effective rate on VDA gains | 31.2% |
| Surcharge (if total income > ₹50L) | 10% / 15% / 25% / 37% on base tax (as applicable) |
This rate applies outside the normal tax slab. A salaried individual earning ₹6 lakh and booking ₹1 lakh of crypto profit does not benefit from the zero-tax slab — the ₹1 lakh is taxed at 31.2% separately. However, the basic exemption limit still applies at the total income level: if total income (including VDA income) does not exceed ₹4 lakh under the new regime for FY 2025-26 (or ₹2.5 lakh under the old regime), no tax is payable.
No change in Budget 2025: The Finance Act 2025 made no amendments to Section 115BBH. The 30% flat rate, the no-loss-set-off rule, and the Schedule VDA reporting requirement are all unchanged for FY 2025-26.
The Section 87A rebate — which eliminates tax up to ₹60,000 for new regime taxpayers with income up to ₹12 lakh — does not apply to VDA income. This was clarified by CBDT and remains a common point of confusion.
If your client has significant crypto gains, they should know this upfront. Get CA guidance on the tax before the next investment cycle, not at filing time.
From ₹999 · Deadline: 31 July 2026.
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3. What Counts as a Transfer — Taxable Events
Section 115BBH uses the word "transfer," which is interpreted broadly. The following all trigger VDA tax:
| Transaction | Taxable? | Notes |
|---|---|---|
| Selling crypto for INR | Yes | Standard sale — gain = sale price minus cost |
| Crypto-to-crypto swap (e.g., BTC to ETH) | Yes | Deemed transfer of BTC at FMV on swap date; ETH's cost = FMV received |
| Using crypto to buy goods/services | Yes | Deemed transfer at FMV on transaction date |
| Gifting crypto to another person | Yes (donor) | Transfer under Section 2(47); recipient taxed under Section 56(2)(x) if applicable |
| Moving crypto between your own wallets | No | Not a transfer — no change in beneficial ownership |
| Receiving crypto as salary/bonus | No (at receipt) | Taxed as salary income at receipt; VDA rules apply only on subsequent sale |
CA Alert — Crypto-to-Crypto Swaps: This is the most frequently missed taxable event. Clients who swap between coins on a DEX (decentralised exchange) or on an Indian exchange often believe no tax arises because they never received INR. They are wrong. Each swap is a taxable transfer of the surrendered coin. CAs must obtain the client's complete transaction history — not just INR-settled trades.
4. Deductions Allowed and Disallowed
Section 115BBH is unusually restrictive on deductions. Only the cost of acquisition is allowed. Everything else is explicitly disallowed under Section 115BBH(2)(b):
| Item | Deductible? |
|---|---|
| Purchase price of the crypto (cost of acquisition) | Yes |
| Exchange transaction fees / brokerage | No |
| Gas fees (blockchain transaction costs) | No |
| Electricity cost (for mining) | No (under VDA; see mining section) |
| Internet or platform subscription costs | No |
| Cost of acquisition of another VDA | No |
The practical implication: a client who bought 1 BTC at ₹30 lakh, paid ₹20,000 in exchange fees, and sold at ₹35 lakh pays tax on ₹5 lakh — not ₹4,80,000. The ₹20,000 fee provides no tax relief.
5. Loss Set-Off Rules — The Harshest Provision
Section 115BBH contains the most punitive loss treatment in the Income Tax Act for individual taxpayers. Two absolute rules apply:
- VDA losses cannot be set off against any other income — not salary, not equity capital gains, not business income, not any other head.
- VDA losses cannot be carried forward to subsequent years.
A loss in one VDA cannot offset a gain in another VDA in the same year. This is the conservative and legally safe reading of the provision, which taxes "income from transfer of virtual digital assets" — the computation is applied per transaction. CAs should compute each VDA gain and loss separately and not net them unless there is clear CBDT guidance permitting intra-VDA netting.
Example: A client earns ₹5 lakh profit from Bitcoin and books a ₹3 lakh loss on a failed altcoin in the same year. Under the strict reading, tax is payable on the full ₹5 lakh BTC gain. The ₹3 lakh altcoin loss evaporates — it cannot reduce the BTC gain, cannot offset salary, and cannot be carried forward. Effective tax: ₹5,00,000 × 31.2% = ₹1,56,000.
This stands in stark contrast to equity capital losses, which can be set off against other capital gains and carried forward for eight years. Compare the rules at Capital Loss Set-Off and Carry Forward Rules (FY 2025-26) →
Clients sitting on large unrealised crypto losses need to know this before the financial year ends. There is no tax planning benefit to realising those losses. From ₹999 · Deadline: 31 July 2026.
File ITR with a CA — avoid costly VDA mistakes →
6. Income Types Outside Section 115BBH
Not all crypto income is taxed at 30%. The 30% rate applies only to income from transfer of VDA. Three other income types have different treatment:
Mining Income
Newly generated cryptocurrency from mining is Income from Other Sources, taxed at normal slab rates. The FMV of the crypto on the date it enters the miner's wallet is the taxable income. When the miner later sells the mined crypto, the Section 115BBH 30% rate applies, with cost of acquisition = FMV at the time of mining. Miners cannot deduct electricity or hardware costs under VDA rules, but since mining income is taxable as IFOS, legitimate deductions under that head may apply — this area has limited CBDT guidance and CAs should apply professional judgment.
Staking Rewards
Staking rewards currently have no specific provision in the Act. The conservative and widely-adopted treatment is Income from Other Sources at slab rate at the time of receipt (FMV on date of credit). The subsequent sale of staking rewards triggers the 30% VDA rate, with cost = FMV at receipt. CBDT has not issued a specific circular on staking — note this ambiguity when advising clients.
Airdrops
Free tokens received via airdrop are Income from Other Sources at slab rate when received (FMV on date of receipt). Subsequent sale is taxed under Section 115BBH, with cost of acquisition = FMV on airdrop date.
| Income Type | Section | Tax Rate | Cost for Future Sale |
|---|---|---|---|
| Trading / selling crypto | 115BBH | 30% + cess | Purchase price |
| Mining income | IFOS | Slab rate | FMV on date of mining |
| Staking rewards | IFOS (no specific provision) | Slab rate | FMV on date of receipt |
| Airdrops | IFOS / Section 56(2)(x) | Slab rate | FMV on date of receipt |
| Crypto received as salary | Salaries | Slab rate | FMV on date of salary credit |
7. TDS Under Section 194S
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Section 194S mandates 1% TDS on payment for the transfer of a VDA. The thresholds depend on the buyer's profile:
- ₹50,000 aggregate per year — for individuals/HUFs where business/professional income does not exceed ₹1 crore (or gross receipts ≤ ₹50 lakh) and who are not subject to tax audit
- ₹10,000 aggregate per year — for all other buyers (companies, firms, individuals above audit threshold)
In practice, Indian crypto exchanges (WazirX, CoinDCX, Coinswitch, etc.) deduct TDS automatically and report it. This appears in Part A of Form 26AS and in the taxpayer's AIS under "Tax Deducted at Source." The CA should verify TDS credits against the exchange-provided tax reports and reconcile with AIS before filing.
For international exchanges (Binance, Kraken, Coinbase, etc.), the TDS obligation falls on the Indian buyer in P2P scenarios — a provision that is practically unenforceable. The income from these platforms is still taxable and must be self-reported. The AIS may not capture these transactions at all, making client disclosure the only reliable source.
8. Where to Report in ITR
Schedule VDA was introduced from AY 2022-23 in ITR-2 and ITR-3. It requires transaction-level disclosure: date of acquisition, date of transfer, cost of acquisition, and sale consideration for each VDA.
| Client Profile | Correct ITR Form |
|---|---|
| Salaried + only VDA income (no F&O, no business income) | ITR-2 (Schedule VDA) |
| VDA income + F&O income | ITR-3 (Schedule VDA + Schedule BP) |
| VDA income + other business income | ITR-3 |
| Salaried only (ITR-1 filer) with VDA income | Must upgrade to ITR-2 — ITR-1 cannot report VDA |
ITR-1 and ITR-4 cannot accommodate VDA income. A client who adds a small crypto trade to an otherwise simple return cannot use the simplified Sahaj form. This is a common error that leads to defective return notices from the IT department.
See also: ITR-2 vs ITR-3 — Which Form for Capital Gains and F&O Income? →
9. Practical Issues for CAs
Client Non-Disclosure
Many taxpayers do not voluntarily disclose crypto holdings. This is now a significant compliance risk: Indian exchanges report transaction data to the IT department, and this appears in the taxpayer's AIS. A mismatch between AIS data and the filed ITR triggers an automatic notice. CAs should run an AIS check for every client and specifically ask about crypto in the initial checklist. See AIS Mismatch — How to Reconcile Before Filing ITR →
International Exchange Transactions
Transactions on Binance, Coinbase, or any international platform will not appear in AIS. The CA must rely on client-provided transaction history, typically a CSV export. Validate totals, check for completeness, and document the source. If a client cannot produce records, advise them on the risk of under-reporting — the department can and does send Section 142(1) notices asking for underlying documents.
Cost of Acquisition — FIFO vs Average Cost
The Income Tax Act does not prescribe a specific method for computing cost of acquisition for VDA. Two approaches are common: First In First Out (FIFO) and weighted average cost. Either is defensible if applied consistently. The key discipline: choose a method, document it, and apply it uniformly across all transactions for the year. Do not switch methods across clients or years without disclosure.
Crypto Received as Employee Compensation
If a client's employer paid part of the salary in crypto (a growing practice in startup and Web3 companies), the FMV on the date of receipt is salary income — already taxed through TDS by the employer. The cost of acquisition for the subsequent VDA sale is this FMV. The CA should obtain the employer's valuation documentation and reconcile it against the client's exchange records.
DeFi and Complex Protocols
Liquidity pool deposits, yield farming, lending protocol interest, and wrapped token conversions are areas where the Act provides no specific guidance. Until CBDT issues a circular, the conservative approach is to treat each protocol interaction that involves a disposal of tokens as a taxable transfer. Flag these to clients and document the treatment chosen.
Crypto clients are complex. If you are a CA managing multiple such clients, getting the Schedule VDA entries right — especially across multiple exchanges and wallet types — is time-consuming work. From ₹999 · Deadline: 31 July 2026.
Get expert CA help for your crypto ITR →
10. Comparison: VDA Tax vs Equity Capital Gains
Crypto investors coming from an equity background often assume similar treatment. The differences are significant:
| Feature | Equity STCG/LTCG | VDA (Crypto) |
|---|---|---|
| Tax rate | 20% (STCG) / 12.5% (LTCG above ₹1.25L) | 30% flat (no holding period benefit) |
| Holding period benefit | Yes — lower rate after 12 months | No — same rate regardless of holding period |
| LTCG exemption | ₹1.25 lakh per year | None |
| Exchange fees deductible | Yes (as transfer expenses) | No |
| Loss set-off | Against other capital gains (with conditions) | Not allowed against anything |
| Loss carry-forward | 8 years (against capital gains) | Not allowed |
| Section 87A rebate | Not available on STCG/LTCG | Not available on VDA income |
| ITR form | ITR-2 (Schedule 112A / CG) | ITR-2 or ITR-3 (Schedule VDA) |
For a full breakdown of equity capital gains rules, see How to Calculate STCG and LTCG for ITR-2 in FY 2025-26 →
Frequently Asked Questions
What is the tax rate on crypto gains in India for FY 2025-26?
Crypto and VDA gains are taxed at a flat 30% under Section 115BBH, plus 4% Health and Education Cess, making the effective rate 31.2%. No slab benefits apply — even a taxpayer who otherwise falls in the 5% bracket pays 30% on VDA income. The Section 87A rebate does not apply to VDA gains.
Can I set off crypto losses against other income?
No. VDA losses cannot be set off against salary, capital gains, business income, or any other head under the Income Tax Act. They also cannot be carried forward to the next year. This is one of the strictest loss-treatment provisions in the Act. See Capital Loss Set-Off Rules → for comparison with equity losses.
Is a crypto-to-crypto swap (e.g., BTC to ETH) taxable?
Yes. Swapping one cryptocurrency for another is treated as a transfer of the first crypto at its fair market value on the date of the swap. The gain is computed as FMV of the crypto surrendered minus its cost of acquisition, taxed at 30%. The received crypto's cost of acquisition becomes the FMV at the time of the swap. This is the most commonly missed taxable event.
Which ITR form do I use to report crypto income?
Use ITR-2 if your only special income is VDA gains (no business or F&O income). Use ITR-3 if you also have F&O trading, professional income, or other business income. Crypto income cannot be reported in ITR-1 or ITR-4 — using the wrong form results in a defective return notice.
What deductions are allowed when computing VDA gains?
Only the cost of acquisition is deductible. Exchange fees, transaction fees, gas fees, electricity costs, and internet charges are explicitly not deductible under Section 115BBH(2)(b). This applies even if those costs are directly related to the trade.
How is TDS on crypto transactions applied?
Section 194S mandates 1% TDS on VDA transfers above ₹50,000 per year (for individuals/HUFs below the tax audit threshold) or ₹10,000 for others. Indian exchanges like CoinDCX deduct it automatically and reflect it in Form 26AS and AIS. For international exchanges, the Indian buyer/seller is technically responsible for deducting TDS — though enforcement is limited.
Is mining income taxed differently from trading gains?
Yes. Mining income (newly generated crypto) is taxed as Income from Other Sources at normal slab rates — not at the flat 30% VDA rate. When the mined crypto is later sold, the 30% rate applies on that sale, with cost of acquisition being the FMV on the date the crypto was received from mining.
Does gifting crypto trigger tax?
For the donor, gifting crypto is a transfer under Section 2(47) and is taxable at 30%. For the recipient, if the gift exceeds ₹50,000 in aggregate value in a year and comes from a non-relative, it is taxable under Section 56(2)(x) as Income from Other Sources at slab rates. The recipient's cost of acquisition for any future sale equals the FMV on the date of the gift.
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