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 when annual transfers exceed Rs 10,000 (Rs 50,000 for specified persons like individual / HUF with turnover below the Section 194Q limit).
- 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). The Schedule is mandatory, omitting it is a Section 139(9) defective return.
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 lakh exemption like equity), only acquisition cost is deductible, and losses are ring-fenced within each coin with no spillover. 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 ₹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.
1% TDS on buyer — Section 194S
Deducted at source on purchase. Credited as advance tax in your Form 26AS.
Health & Education Cess on tax
Applied on top of 30% base tax and any surcharge.
Equity LTCG (for comparison)
Listed equity held 12+ months. Loss set-off allowed. Section 112A.
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.
| Rule | Details |
|---|---|
| Tax rate | 30% flat |
| Surcharge | Standard slabs (10% above Rs 50 lakh total income, up to 37% above Rs 5 crore in old regime; capped at 25% in new regime) |
| Cess | 4% Health and Education Cess on tax + surcharge |
| Exemption threshold | None. Even Rs 1 of VDA gain is taxable. |
| Deductions | Only cost of acquisition. No brokerage, gas fees, withdrawal fees, internet costs, or any other expense |
| Loss set-off | Not allowed against any head, including other VDA gains |
| Loss carry forward | Not allowed to subsequent years |
| Slab benefit | None. Section 115BBH is a special flat-rate regime |
| Chapter VI-A deductions (80C, 80D, etc.) | Do not reduce VDA income |
Worked Example
Ravi in Bengaluru made three VDA transactions in FY 2025-26:
| Transaction | Bought For | Sold For | Gain / Loss |
|---|---|---|---|
| Bitcoin (held 8 months) | Rs 12,00,000 | Rs 18,00,000 | +Rs 6,00,000 |
| Ethereum (held 3 months) | Rs 8,00,000 | Rs 5,50,000 | -Rs 2,50,000 |
| Solana (held 11 months) | Rs 3,00,000 | Rs 4,20,000 | +Rs 1,20,000 |
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.
| Payer / Recipient | TDS Threshold (per FY) |
|---|---|
| Individual / HUF whose turnover does not exceed limits in Section 44AB (i.e. Rs 1 crore business / Rs 50 lakh profession) | Rs 50,000 |
| Anyone else (companies, LLPs, HNIs with high turnover) | Rs 10,000 |
Indian exchanges (CoinDCX, WazirX, CoinSwitch, etc.) deduct this 1% automatically on every sale crossing the threshold.
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?
| Your Situation | ITR Form |
|---|---|
| VDAs held as investments, occasional buy / sell | ITR-2 (capital gains route; VDA appears under Schedule CG with special treatment) |
| VDAs held as stock-in-trade, frequent trading, day-trading, arbitrage | ITR-3 (business income route; VDAs are business receipts, Schedule BP) |
| Presumptive ITR-4 | Not compatible, VDA gains cannot be reported in ITR-4. Switch to ITR-3 for the year |
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:
- Date of acquisition
- Date of transfer (sale)
- Head of income (Capital Gains or Business)
- Cost of acquisition (in INR, converted at actual purchase rate)
- Consideration received (in INR)
- 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), now includes VDA-specific entries where exchanges have reported transactions to ITD under Rule 114B / SFT framework
- 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:
| Event | Tax Treatment |
|---|---|
| Gift of VDA received | Market value at time of receipt is taxable under Section 56(2)(x) as "income from other sources" if aggregate gifts in a year exceed Rs 50,000 from non-relatives |
| Airdrops | Market value at time of receipt is income under Section 56(2)(x); later sale triggers Section 115BBH on the gain from that cost base |
| Mining reward | Market value at time of mining is income; cost of acquisition for later sale is that market value |
| Staking / lending rewards | Market value at receipt is income under other sources; later sale under Section 115BBH |
| NFT creation (minting) and sale | Business income if creator is in the trade; capital gains / 115BBH if held as investment |
CBDT Notification 74/2022 clarified that the cost of acquisition for airdrops and mining is the fair market value at receipt, not zero. This prevents double-taxation of the gain above the market value.
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. Using LIFO or random lot matching. The rule for VDA cost matching is FIFO (First-In-First-Out) per coin per wallet, unless the exchange provides a clearly identifiable lot. Random or LIFO matching creates a mismatch against exchange P&L and triggers a notice.
4. Skipping Schedule VDA because "TDS was already deducted". TDS is not final tax. You must compute and pay the balance 30% - 1% TDS - surcharge - cess. Skipping the Schedule is a defective return.
5. Ignoring Schedule FA for foreign exchange holdings. Any residence-based taxpayer with crypto held on a foreign exchange or in a self-custody wallet registered abroad must declare it in Schedule FA. Missing this triggers Section 271(1)(c) penalty and prosecution under Black Money Act 2015 risks.
6. Failing to report airdrops received in earlier years. If you received a 2021 airdrop at Rs 20,000 fair market value and sold it in FY 2025-26 for Rs 80,000, the gain is Rs 60,000 not Rs 80,000. But the original Rs 20,000 should have been reported in FY 2021-22. 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 left Section 115BBH unchanged. The 30% flat rate, the 1% TDS under 194S, and the no-set-off rule continue exactly as in prior years. CBDT has signalled increased scrutiny on VDA reporting via AIS integration and exchange data sharing, so filings for AY 2026-27 will face higher auto-matching than previous years.
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 against 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 tax compliance plans or talk to our team.
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