Cryptocurrency & VDA Taxation in India

Complete Tax Guide for FY 2025-26 (AY 2026-27)

A Comprehensive Guide under the Income Tax Act, 1961 and Rules Framed Thereunder

Sections 2(47A) | 56(2)(x) | 115BBH | 194S  |  Assessment Year 2026-27

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Cryptocurrency taxation in India is no longer a grey area. The Finance Act, 2022 brought Virtual Digital Assets (VDA) under a clear — if strict — tax framework. For FY 2025-26 (AY 2026-27), every Bitcoin, Ethereum, NFT, or crypto gain you make is taxable at a flat 30% tax rate, with a 1% TDS on every transfer under Section 194S. Whether you are a casual investor, an active trader, or someone who received crypto as a gift or mining reward, understanding your crypto tax obligations is not optional — it is a legal requirement enforced by the Income Tax Department.

This guide by TaxGen Solutions covers everything: the VDA definition, the 30% crypto tax rate, which deductions are allowed or blocked, how TDS on cryptocurrency works, and exactly how to file ITR for crypto income — with all relevant sections of the Income-tax Act, 1961 explained in plain language.

1. DEFINITION

What Is a Virtual Digital Asset (VDA)?

The Finance Act, 2022 introduced the concept of Virtual Digital Asset (VDA) into the Income Tax Act, 1961 by inserting Section 2(47A). This was a watershed moment — India became one of the first countries to define crypto for direct tax purposes within its primary income tax legislation.

As per Section 2(47A), a VDA means any information, code, number, or token (not being Indian currency or foreign currency) generated through cryptographic means or otherwise, providing a digital representation of value, promising to have inherent value, or functions as a store of value or a unit of account. This includes its use in any financial transaction or investment.

2. CORE TAX FRAMEWORK

The Core Tax Framework: Section 115BBH

Section 115BBH, inserted by the Finance Act 2022, lays down the primary charging provision for VDA taxation. For FY 2025-26 (AY 2026-27), the following key provisions apply:

Tax Rate: Flat 30%

Income arising from the transfer of a VDA is taxed at a flat rate of 30% (plus applicable surcharge and 4% Health & Education Cess), regardless of the taxpayer's income slab or the holding period. The concept of short-term vs long-term capital gains — which benefits equity investors — does not apply to VDAs. There is no LTCG/STCG benefit on cryptocurrency gains in India.

What Counts as a 'Transfer'?

The word transfer is given an expansive meaning under the Act. The following constitute a taxable crypto transfer event:

●        Sale of crypto for Indian Rupees (INR)

●        Conversion of one crypto to another (e.g., BTC to ETH) — treated as sale + purchase

●        Using crypto to purchase goods or services

●        Transfer of NFTs for consideration

●        Gifting of VDA to any person other than a specified relative

●        Receipt of airdropped tokens (treated as income on FMV at date of receipt)

3. DEDUCTIONS ALLOWED & DISALLOWED

Deductions Allowed & Disallowed Under Section 115BBH

Section 115BBH is deliberately restrictive on deductions — a taxpayer-unfriendly provision that has drawn significant criticism from industry bodies and tax professionals since its introduction. Understanding what is and is not deductible is critical for accurate crypto tax calculation.

4. TDS COMPLIANCE

TDS on Crypto Transactions: Section 194S

Section 194S mandates Tax Deducted at Source (TDS) on any payment made to a resident in respect of transfer of a Virtual Digital Asset. This provision applies from July 1, 2022, and continues fully operative in FY 2025-26. For crypto investors and traders, understanding TDS obligations is essential for accurate ITR filing and avoiding interest and penalties.

*Specified Person: Individual/HUF with business turnover up to ₹1 crore (or professional receipts up to ₹50 lakh), or any person whose VDA consideration does not exceed ₹50,000 in the FY.

5. GIFT TAXATION

Gift of VDA: Section 56(2)(x)

Receiving VDA as a gift has specific tax implications under Section 56(2)(x) of the Income Tax Act, 1961. The taxability depends on the relationship between the donor and recipient, and the occasion.

When the receiver subsequently transfers the gifted VDA, the cost of acquisition for the receiver is the Fair Market Value (FMV) that was taxed at the time of receipt — preventing double taxation on the same appreciation.

6. SPECIAL SITUATIONS & EDGE CASES

Special Situations & Edge Cases in Crypto Taxation

Crypto Mining Income

When a taxpayer mines cryptocurrency, the mined coins are treated as Income from Other Sources at FMV on the date of receipt — not under Section 115BBH at the mining stage itself. However, when such mined coins are subsequently sold, Section 115BBH applies at 30% on the gain. The cost of acquisition for this purpose is the FMV used for taxing the mining income.

Staking Rewards

Staking rewards (earning new tokens by locking existing ones in a proof-of-stake protocol) are treated similarly to mining income — taxable as Income from Other Sources at FMV at the time of receipt. The subsequent sale of staked-reward tokens is governed by Section 115BBH.

Crypto Salary / Remuneration

If an employer pays salary in crypto, it is taxed as Salary Income at normal slab rates on the FMV at the time of credit to the employee. The subsequent transfer of such crypto by the employee triggers Section 115BBH at 30% on any further appreciation.

Crypto-to-Crypto Swap

Every swap — for example, converting ETH to MATIC — is a taxable transfer. The gain = FMV of received crypto minus Cost of swapped crypto. TDS obligations also apply at 1%. There is no like-kind exchange exemption in India, unlike in some other jurisdictions.

Foreign Crypto Assets — Schedule FA

Indian residents holding crypto on foreign exchanges must disclose such assets under Schedule FA (Foreign Assets) in their Income Tax Return. Failure to disclose may attract penalties under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015, with penalties up to ₹10 lakh per year of non-disclosure, in addition to prosecution.

7. COMPLIANCE CALENDAR

Compliance Calendar for Crypto Taxpayers — FY 2025-26

Staying on top of every crypto tax deadline is critical to avoid late fees, interest, and penalties. TaxGen Solutions recommends tracking these key dates every financial year:

8. PENALTIES FOR NON-COMPLIANCE

Penalties for Non-Compliance with Crypto Tax Rules

The Income Tax Department has significantly increased its scrutiny of cryptocurrency transactions through data from SEBI, stock exchanges, and registered crypto exchanges. Non-compliance is increasingly detectable and increasingly costly.

9. PRACTICAL COMPLIANCE CHECKLIST

Key Compliance Steps for Crypto Investors & Traders

10. SUMMARY & KEY TAKEAWAYS

Summary & Key Takeaways

For FY 2025-26, the Indian crypto taxation regime is characterised by its simplicity in rate (flat 30%) but harshness in structure. There is no distinction between investors and traders, no holding period benefit, no ability to offset crypto losses across different coins, and a 1% TDS that impacts liquidity — particularly for high-frequency traders and market makers.

For the compliant taxpayer, the path forward involves disciplined record-keeping, timely TDS compliance, advance tax planning, and full disclosure in Schedule VDA of the Income Tax Return. For those operating across borders, Schedule FA compliance under the Income Tax Act and FEMA obligations are equally critical.

Crypto may be decentralised — but its taxation in India is very much centralised, and very much enforced.

●        VDA income taxed at flat 30% + 4% cess under Section 115BBH

●        No LTCG/STCG benefit — holding period is irrelevant

●        Only cost of acquisition is deductible — no brokerage, no expenses

●        No loss set-off across coins; no carry forward of VDA losses

●        1% TDS on every VDA transfer under Section 194S

●        Crypto-to-crypto swaps are taxable transfer events

●        Mining and staking rewards taxed as Income from Other Sources

●        Foreign crypto holdings must be disclosed in Schedule FA

●        File ITR-2 or ITR-3 with Schedule VDA — not ITR-1

●        Pay advance tax quarterly if estimated liability exceeds ₹10,000

At TaxGen Solutions, our expert CAs guide you through every step — from computing your crypto gains and TDS reconciliation to filing your ITR with Schedule VDA — accurately and on time. Visit www.taxgensolutions.com or write to us at support@taxgensolutions.com.

Frequently Asked Questions (FAQs)

Crypto Tax India FY 2025-26 | VDA Taxation | Cryptocurrency ITR Filing | TaxGen Solutions

Q1. Is cryptocurrency taxable in India for FY 2025-26?

Yes, absolutely. All income from cryptocurrency and Virtual Digital Assets (VDA) is taxable in India for FY 2025-26 under Section 115BBH of the Income Tax Act, 1961. Every sale, swap, gifting, or use of crypto to buy goods is a taxable event. Profits are taxed at a flat 30% rate plus 4% Health & Education Cess, regardless of your income slab or how long you held the asset.

Q2. What is the tax rate on cryptocurrency gains in India?

The crypto tax rate in India for FY 2025-26 is a flat 30% under Section 115BBH, plus 4% Health & Education Cess — making the effective rate 31.20% for individuals with income below ₹50 lakh. A surcharge of 10% applies if income exceeds ₹50 lakh, taking the effective rate to 34.32%. There is no short-term vs long-term distinction — the 30% rate applies regardless of the holding period.

Q3. Can I set off crypto losses against crypto gains or other income?

No. This is one of the harshest aspects of VDA taxation in India. Under Section 115BBH, crypto losses cannot be set off against profits from another cryptocurrency in the same year. They also cannot be set off against salary, business income, or any other income head. VDA losses cannot be carried forward to future years either — they are permanently lost. This makes tax-loss harvesting strategies ineffective in the Indian crypto tax framework.

Q4. What is TDS on cryptocurrency and how does it work?

Section 194S mandates a 1% TDS on every Virtual Digital Asset transfer above the threshold (₹10,000/year for most individuals; ₹50,000/year for specified persons). TDS is deducted by the buyer or registered crypto exchange at the time of payment. You can claim this TDS credit in your ITR against your final tax liability. For P2P trades, the buyer must deduct and deposit TDS using Form 26QE or Form 26Q.

Q5. Which ITR form should I file for crypto income in FY 2025-26?

For crypto income ITR filing, you must use ITR-2 (if you have no business income other than VDA) or ITR-3 (if you have business income along with VDA income). You cannot use ITR-1 (Sahaj) if you have any cryptocurrency income, even if the amount is small. Both ITR-2 and ITR-3 have a dedicated Schedule VDA where each VDA transaction must be disclosed. TaxGen Solutions provides expert assistance in filing the correct ITR form with accurate Schedule VDA disclosure.

Q6. Is converting Bitcoin to Ethereum a taxable event in India?

Yes. Every crypto-to-crypto swap is treated as a taxable transfer under the Income Tax Act, 1961. Converting BTC to ETH is treated as: (a) selling BTC at its current Fair Market Value (FMV) in INR, and (b) purchasing ETH at the same FMV. The gain = FMV of ETH received minus Cost of BTC sold. TDS at 1% under Section 194S also applies. There is no like-kind exchange exemption in India.

Q7. Are brokerage or exchange fees deductible from crypto gains?

No. Section 115BBH(2)(i) explicitly disallows brokerage, exchange fees, transaction charges, mining costs, and electricity charges as deductions from VDA income. The only deduction permitted is the cost of acquisition — i.e., what you originally paid to purchase the cryptocurrency. This makes crypto taxation more onerous than equity or F&O taxation, where trading expenses are deductible.

Q8. Is Bitcoin taxable in India even if I don't sell it?

If you simply hold Bitcoin without any transfer, sale, swap, or gifting, there is no taxable event. Cryptocurrency tax in India is triggered only upon transfer of a VDA. However, if you receive Bitcoin as salary, mining reward, staking reward, or gift (from a non-relative exceeding ₹50,000), that is taxable even without a subsequent sale. TaxGen Solutions recommends maintaining a transaction-by-transaction record throughout the year.

Q9. How is crypto mining income taxed in India?

Crypto mining income in India is taxed in two stages: (1) When coins are mined, the Fair Market Value (FMV) of the mined coins on the date of receipt is taxable as Income from Other Sources at your normal slab rate. (2) When the mined coins are subsequently sold or transferred, Section 115BBH applies at 30% on any appreciation over the FMV already taxed. Mining costs and electricity charges are not deductible under Section 115BBH.

Q10. What is Schedule VDA in ITR? How do I fill it?

Schedule VDA is a dedicated disclosure schedule in ITR-2 and ITR-3 for Virtual Digital Asset transactions. For each transaction, you must disclose: (a) date of acquisition, (b) date of transfer, (c) head of income (VDA), (d) cost of acquisition in INR, (e) sale/transfer consideration in INR, and (f) the resulting gain or loss. TaxGen Solutions assists clients in accurately populating Schedule VDA from their exchange statements and P&L data.

Q11. Are staking rewards taxable in India?

Yes. Staking rewards — tokens earned by locking existing crypto in a proof-of-stake protocol — are taxable as Income from Other Sources at the Fair Market Value on the date of receipt, at your normal income tax slab rate. When you later sell or transfer those staking rewards, Section 115BBH applies at 30% on any appreciation over the FMV at the time of receipt. You must disclose staking income separately in your crypto ITR.

Q12. Do I need to disclose foreign crypto holdings in my ITR?

Yes, this is mandatory. Indian residents holding cryptocurrency on foreign exchanges (such as Binance, Kraken, Coinbase, etc.) must disclose these assets under Schedule FA (Foreign Assets) in their ITR. Failure to disclose may attract penalties of ₹10 lakh per year of non-disclosure under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015, in addition to criminal prosecution. TaxGen Solutions provides specialised guidance for Schedule FA compliance.

Q13. Is a gift of cryptocurrency taxable in India?

It depends on who is gifting and the occasion. Gifts of VDA received from relatives (as defined under the Income Tax Act), received on marriage, or inherited through a Will are fully exempt. However, if you receive crypto as a gift from a non-relative and the aggregate FMV exceeds ₹50,000 in the financial year, the entire FMV is taxable as Income from Other Sources under Section 56(2)(x). When you later sell the gifted crypto, the FMV at which it was taxed becomes your cost of acquisition.

Q14. What is the ITR filing last date for crypto income in FY 2025-26?

The ITR filing last date for crypto income for non-audit cases in FY 2025-26 (AY 2026-27) is 31st July 2026. For taxpayers whose accounts are required to be audited (business turnover exceeding ₹1 crore), the deadline is 31st October 2026. Filing after the due date attracts a late fee under Section 234F of ₹5,000 (₹1,000 if total income is up to ₹5 lakh). TaxGen Solutions recommends filing well before the deadline to avoid last-minute errors.

Q15. Can I claim 80C or other deductions to reduce my crypto tax?

No. This is a specific restriction under Section 115BBH. Chapter VI-A deductions — including Section 80C (PPF, ELSS, LIC), Section 80D (health insurance), and all other deductions under Chapter VI-A — are not available to reduce income taxable under Section 115BBH. Your ₹1.5 lakh 80C investments, home loan interest, or NPS contributions cannot reduce your crypto tax liability. The 30% rate applies on the gross gain after deducting only the cost of acquisition.

Q16. Is the Section 87A rebate available on crypto income?

No. The Section 87A rebate — which provides zero tax for income up to ₹12 lakh under the New Tax Regime — is not available on income taxable at special rates under Section 115BBH. Even if your total income (including crypto gains) is below ₹12 lakh, the 30% tax on your crypto gains cannot be reduced by the 87A rebate. This is confirmed by CBDT clarifications and is a critical point often missed by first-time crypto tax filers.

Q17. Do I need to pay advance tax on crypto gains?

Yes. If your estimated total crypto tax liability (after TDS credit) exceeds ₹10,000 for the year, you must pay advance tax in four quarterly instalments: 15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15. Missing advance tax instalments attracts interest under Sections 234B and 234C at 1% per month. TaxGen Solutions helps you estimate and plan your quarterly advance tax based on your realised and unrealised crypto gains.

Q18. How is the cost of acquisition calculated for crypto purchased in multiple lots?

When you purchase the same cryptocurrency in multiple lots at different prices, the cost of acquisition for each transfer is typically calculated using FIFO (First In, First Out) or Weighted Average Cost (WAC) method. You must apply the chosen method consistently across the financial year. The Income Tax Act does not prescribe a specific method for VDA cost calculation, but consistency and documentation are essential. TaxGen Solutions recommends maintaining a lot-wise purchase register for accurate computation.

Q19. Is using crypto to buy goods or services taxable?

Yes. Under the VDA transfer definition in the Income Tax Act, 1961, using cryptocurrency to purchase goods or services is a taxable transfer event. The gain = FMV of goods/services received minus cost of acquisition of the crypto used. Even if no money changes hands, the tax obligation exists. TDS under Section 194S also technically applies in such transactions, making compliance complex. TaxGen Solutions advises keeping detailed records of every such transaction.

Q20. What happens if I don't report my crypto income in ITR?

Non-disclosure of cryptocurrency income in your ITR can have serious consequences. Under Section 270A, under-reporting or misreporting of income attracts a penalty of 200% of the tax payable on the concealed income. Additionally, the Income Tax Department receives transaction data from registered crypto exchanges under the Annual Information Statement (AIS) and Form 26AS. Non-filers and under-reporters are increasingly being identified and served with notices. TaxGen Solutions strongly recommends full disclosure.

Q21. How do I reconcile TDS on crypto in my ITR?

To reconcile TDS on crypto transactions: (1) Download your Form 26AS and Annual Information Statement (AIS) from the Income Tax portal. (2) Match each TDS deduction with your exchange transaction history. (3) Report the total TDS in the appropriate schedule of ITR-2 or ITR-3. (4) The TDS amount will be credited against your final tax liability. If TDS exceeds your tax payable, you will receive a crypto TDS refund. TaxGen Solutions assists with end-to-end TDS reconciliation and ITR filing for crypto investors.

Q22. Are airdrops and hard fork rewards taxable in India?

Yes. Airdropped tokens received by a taxpayer are taxable as Income from Other Sources at the Fair Market Value (FMV) on the date of receipt. Similarly, tokens received in a hard fork (new coins distributed to existing holders) are taxable at FMV upon receipt. The subsequent sale of such tokens is governed by Section 115BBH at 30% on any gain above the FMV at receipt. Accurate tracking of airdrop and fork receipts is essential for correct crypto tax computation.

Q23. What records should I maintain for crypto tax filing?

For accurate crypto tax filing, maintain: (a) Full trade history from all exchanges with timestamps and INR values, (b) Cost of acquisition records for every coin purchased (lot-wise), (c) Exchange statements / P&L reports for the full year, (d) Bank account statements showing fund flows, (e) TDS certificates (Form 26AS / AIS), (f) Advance tax payment challans, (g) Records of any staking, mining, airdrops, or gifting transactions. All records should be preserved for at least 6 years from the end of the relevant Assessment Year. TaxGen Solutions provides a structured record-keeping template for crypto investors.

Q24. Can a salaried person invest in crypto and how is it taxed?

Yes, there is no restriction on salaried individuals investing in cryptocurrency in India. However, any gains from crypto are taxable separately at 30% under Section 115BBH — they cannot be adjusted against salary income. A salaried person with crypto income must file ITR-2 (not ITR-1) and disclose all VDA transactions in Schedule VDA. The crypto gains are computed separately and no Section 87A rebate or 80C deduction is available against them. TaxGen Solutions offers specialised ITR filing for salaried crypto investors.

Q25. How can TaxGen Solutions help me with my crypto tax filing?

TaxGen Solutions offers end-to-end cryptocurrency tax filing services in India, including: (a) Computation of VDA gains and losses from all exchange statements, (b) Reconciliation of TDS under Section 194S with Form 26AS and AIS, (c) Accurate population of Schedule VDA in ITR-2 / ITR-3, (d) Advance tax calculation and payment planning, (e) Schedule FA disclosure for foreign crypto holdings, and (f) Expert CA review before submission. Contact us at www.taxgensolutions.comor support@taxgensolutions.com for a free consultation.

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This document is for informational purposes only. Consult a qualified Chartered Accountant for personalised tax advice.