How Crypto and VDA Tax Works in India for AY 2026-27

Key Takeaways

• All gains from Virtual Digital Assets (VDAs) are taxed at a flat 30% plus applicable surcharge and 4% cess under Section 115BBH. No slab benefit, no exemption threshold.
• Only the cost of acquisition is deductible. No expenses, no trading fees, no software costs, nothing else.
• 1% TDS on transfer of VDAs applies under Section 194S. No TDS is needed if the consideration paid in the year does not exceed Rs 50,000 where the buyer is a specified person (an individual or HUF with no business income, or with business turnover up to Rs 1 crore or professional receipts up to Rs 50 lakh), or Rs 10,000 for other buyers.
• No set-off of losses from one VDA against any income, including other VDA gains. A Bitcoin loss cannot reduce an Ethereum gain, let alone salary or capital gains from shares.
• Reporting is through Schedule VDA in ITR 2 (capital gains route) or ITR 3 (business income route). Every VDA transfer must be reported there.

Crypto tax in India is the strictest personal-tax regime on any asset class. The 30% flat rate applies to gains above zero (no Rs 1.25 lakh exemption like equity), only acquisition cost is deductible, and losses cannot be set off against any other income, including gains on other VDAs. Yet for AY 2026-27 (FY 2025-26), reporting is mandatory and the Income Tax Department has the data from exchanges and 1% TDS filings. This guide walks through what counts as a VDA, how to compute the tax, how Schedule VDA works, and the common traps.

What Counts as a Virtual Digital Asset?

Section 2(47A) of the Income Tax Act defines a VDA to include:

• Cryptocurrencies, Bitcoin, Ethereum, Solana, Cardano, BNB, XRP, Dogecoin, Shiba Inu, USDT, USDC, and every other token traded on exchanges
• Non-Fungible Tokens (NFTs), as notified by CBDT Notification No. 75/2022
• Any information, code, number or token (other than Indian currency or foreign currency) generated through cryptographic means, providing a digital representation of value exchanged with or without consideration

Not VDAs:

• Gift cards, vouchers, digital rewards excluded by CBDT Notification 74/2022
• Subscription tokens for accessing an online platform (where they cannot be traded)
• Central Bank Digital Currency (CBDC / Digital Rupee), treated as legal tender, not a VDA

The 30% Tax Rule Under Section 115BBH

Tax Rate Chart

Crypto / VDA Tax Rules : Section 115BBH (AY 2026-27)

No exemption threshold. Even Rs. 1 of gain is taxed at 30%.

Crypto / VDA gains : Section 115BBH

Flat rate. No slab benefit. No 80C/80D deductions. No loss set-off allowed.

30%

1% TDS on buyer : Section 194S

Deducted at source on purchase. Credited as advance tax in your Form 26AS.

1%

Health & Education Cess on tax

Applied on top of 30% base tax and any surcharge.

4%

Equity LTCG (for comparison)

Listed equity held 12+ months. Loss set-off allowed. Section 112A.

12.5%

Source: Finance Act 2022 (Section 115BBH, 194S); Finance Act 2024; Income Tax Act 2025

For every transfer of a VDA, gain = Sale Consideration minus Cost of Acquisition. Each transfer stands alone: a loss on one transfer is simply ignored.

Worked Example

Ravi in Bengaluru made three VDA transactions in FY 2025-26:

Income under Section 115BBH:

• Bitcoin gain: Rs 6,00,000 (taxable)
• Ethereum loss: Rs 2,50,000 (not deductible, cannot reduce Bitcoin or Solana gain)
• Solana gain: Rs 1,20,000 (taxable)
• Total taxable VDA income: Rs 7,20,000

Tax:

• 30% × Rs 7,20,000 = Rs 2,16,000
• 4% cess = Rs 8,640
• Total tax: Rs 2,24,640 (no surcharge at this income level)

The Rs 2.5 lakh Ethereum loss is effectively wasted. It does not reduce his Bitcoin gain, cannot offset his salary, and cannot be carried forward.

1% TDS Under Section 194S

Effective 1 July 2022, buyers of VDAs must deduct 1% TDS on the sale consideration at the time of credit or payment, whichever is earlier.

Indian exchanges (CoinDCX, WazirX, CoinSwitch, etc.) deduct this 1% automatically on every sale crossing the threshold.

Income tax is only one side of the ledger; for when 18% GST applies to crypto exchanges, mining and P2P transfers, see our guide on GST on cryptocurrency and VDA transactions.

Peer-to-peer (P2P) crypto sales and foreign exchange transactions: The buyer is required to deduct TDS. Practically, P2P between individuals is often non-compliant. The seller still has to declare the income.

TDS credit: Appears in Form 26AS and the Annual Information Statement (AIS) against your PAN. Claim it in the ITR like any other TDS.

Schedule VDA in ITR 2 and ITR 3

For AY 2026-27, all VDA transactions must be reported in Schedule VDA.

Which ITR Form?

Rule of thumb: If you hold for months and transact a few times a year, ITR 2 is fine. If you trade daily or weekly, ITR 3 is the correct form, but note that Section 115BBH's flat 30% still applies, so the business route does not give you any expense deduction either.

Schedule VDA Fields Required

For each VDA transfer:

1. Date of acquisition
2. Date of transfer (sale)
3. Head of income (Capital Gains or Business)
4. Cost of acquisition (in INR, converted at actual purchase rate)
5. Consideration received (in INR)
6. Income from transfer (column 5 minus column 4)

If you have hundreds of trades, you can aggregate monthly per coin for Schedule VDA, but keep the detailed transaction log ready for scrutiny.

Reconciling With Form 26AS and AIS

Every ITR filing must reconcile the declared VDA income with:

• Form 26AS, shows 1% TDS deducted by exchanges and buyers under Section 194S
• Annual Information Statement (AIS), which shows VDA transfers reported through Section 194S TDS statements (and, from 1 April 2026, crypto-asset transaction statements filed by reporting entities under Section 285BAA / Section 509 of the 2025 Act)
• Exchange-provided Profit and Loss Statement, Indian exchanges issue an annual P&L report for FY tagged to PAN

Reconciliation checklist:

• Every transfer appearing in Form 26AS is in your Schedule VDA
• 1% TDS claimed in the ITR matches the 26AS figure
• Exchange P&L totals match the sum of gains / losses you are declaring
• International / P2P trades (which may not appear in 26AS) are also declared

Mismatches trigger Section 143(1)(a) notices or selection for scrutiny under risk-based assessment.

Gift, Airdrop, Mining, Staking

These are all separately taxable under the VDA regime:

Sale of any of these is then taxed at 30% under Section 115BBH.

Foreign Exchanges, Wallet Transfers, and Disclosure

Foreign exchanges (Binance, Kraken, Coinbase): Transactions are taxable in India if you are an Indian resident. Foreign exchanges typically do not deduct TDS, so you must self-report and pay advance tax. Any foreign exchange holding may also trigger Schedule FA (Foreign Assets) reporting in ITR for residents holding foreign financial accounts.

Wallet-to-wallet transfers between your own wallets: Not a taxable event if there is no change in beneficial ownership. Keep wallet-address proof in case of scrutiny.

Gifts from relatives: Exempt under Section 56(2)(x) as received from relative.

Common Mistakes Crypto Investors Make

1. Netting gains and losses within VDAs. A Bitcoin gain of Rs 5 lakh and an Ethereum loss of Rs 2 lakh is declared as Rs 5 lakh, not Rs 3 lakh. Netting is not allowed.

2. Claiming gas fees or trading fees as expenses. Only the cost of acquisition reduces taxable gain. Gas fees paid on the sale side are not deductible.

3. Inconsistent lot matching. The Act does not prescribe a lot-matching method for VDAs. Use one documented method consistently (FIFO is the common practice and matches most exchange P&L statements), otherwise your figures will not reconcile with exchange data.

4. Skipping Schedule VDA because "TDS was already deducted". TDS is not final tax. You must compute tax at 30% plus surcharge and cess on each gain and pay the balance after the 1% TDS credit.

5. Ignoring Schedule FA for foreign exchange holdings. Residents holding crypto on a foreign exchange or custodian are commonly advised to report it in Schedule FA. Non-disclosure of foreign assets can attract the Rs 10 lakh penalty under the Black Money Act 2015 (not applicable where movable foreign assets in aggregate do not exceed Rs 20 lakh).

6. Failing to report airdrops received in earlier years. If you received an airdrop worth Rs 60,000 in FY 2023-24 (above the Rs 50,000 limit, so taxable then under Section 56(2)(x)) and sold it in FY 2025-26 for Rs 80,000, the gain is Rs 20,000, not Rs 80,000. But the Rs 60,000 should have been reported in FY 2023-24. Missed declarations can be corrected using the Updated Return (ITR-U) window.

7. Using ITR 4 presumptive with VDA income. ITR 4 does not support VDA reporting. Move to ITR 3 for the year.

Budget 2026 Updates for VDA

Budget 2026 did not change the 30% rate, the 1% TDS or the no-set-off rule. From Tax Year 2026-27 these sit in Section 194 (tax on VDA income) and Section 393 (TDS) of the Income-tax Act, 2025. The Finance Act 2025 required prescribed reporting entities to file crypto-asset transaction statements from 1 April 2026, and the Finance Act 2026 added penalties for not filing them (Rs 200 per day) or filing inaccurate ones (Rs 50,000), so exchange data in AIS will keep getting richer.

For the buyer-side mechanics, including the Rs 50,000 and Rs 10,000 thresholds and Form 26QE for peer-to-peer trades, see our Section 194S TDS guide for crypto and VDA transfers.

Let Tax Garden Handle Your Crypto ITR

Crypto ITRs go wrong in predictable places, TDS reconciliation gaps, foreign-exchange non-disclosure, FIFO matching errors, and missed airdrop income. Tax Garden pulls your CoinDCX / WazirX / CoinSwitch / Binance statements, reconciles them with Form 26AS and AIS, fills Schedule VDA by transfer, and files ITR 2 or ITR 3 with the right route for your holding pattern. See our ITR filing service or talk to our team.

Frequently Asked Questions

Can I carry forward crypto losses to next year?

No. A loss from transferring a virtual digital asset cannot be set off against any other income, including gains on other VDAs, and cannot be carried forward to later years. Each profitable transfer is taxed at 30% plus cess on its own gain, while loss-making transfers are simply ignored for tax. This is why realising losses at year-end gives no tax benefit for crypto.

Is crypto received as an airdrop or gift taxable?

A VDA received without consideration is taxable as income from other sources under Section 56(2)(x) if its fair market value exceeds Rs 50,000 in aggregate in the year, unless received from a relative or on specified occasions such as marriage. The value taxed on receipt then becomes the cost of acquisition when you later sell it, and the sale gain is taxed at 30%.

Is TDS under Section 194S final tax on crypto?

No. The 1% TDS deducted by the exchange or buyer is only a credit against your total tax. You still compute the actual gain on each transfer, pay 30% tax plus applicable surcharge and 4% cess on it, and claim the 1% TDS shown in Form 26AS. If you had losses on many trades, TDS may exceed your tax and the excess is refunded after processing.

Do I have to pay advance tax on crypto gains?

Yes. Crypto gains are regular income for advance tax purposes, so if your total liability after TDS exceeds Rs 10,000, advance tax is due in the June, September, December and March instalments. The 1% TDS rarely covers the 30% tax, and gains on foreign exchanges or P2P trades often have no TDS at all, so estimate and pay advance tax to avoid 1% per month interest.

Should I report crypto held on a foreign exchange in Schedule FA?

The ITR instructions ask residents to report foreign financial interests in Schedule FA, and many advisers report crypto held on foreign exchanges or custodians there as a precaution, since the law is not explicit about VDAs. Non-disclosure of foreign assets can attract a Rs 10 lakh penalty under the Black Money Act, subject to the Rs 20 lakh relief for movable assets. Gains are taxed at 30% either way.