Crypto Taxation in India – Latest Rules, TDS, ITR Filing & Compliance (FY 2025–26)

If you have bought, sold, traded, or held cryptocurrency, NFTs, or any virtual digital asset in India, you now face a specific and stringent tax regime introduced through the Finance Act 2022. Whether you are a full-time crypto trader, a casual retail investor, or someone who received crypto as a gift, the rules under Section 115BBH and Section 194S apply to you from FY 2022–23 onward—and they continue largely unchanged into FY 2025–26.

What Are Virtual Digital Assets (VDAs)? The Legal Definition

Section 2(47A) of the Income Tax Act, inserted by the Finance Act 2022, defines a Virtual Digital Asset broadly. It covers any information, code, number, or token generated through cryptographic means that can be transferred, stored, or traded electronically. The definition explicitly includes cryptocurrencies like Bitcoin, Ethereum, and Tether; NFTs (non-fungible tokens); and any other token of similar nature notified by the Central Government.

The Central Government retains the power to exclude certain assets from this definition and also to notify additional digital assets. As of FY 2025–26, no major exclusions have been notified for mainstream crypto assets. Gift cards, vouchers, and traditional digital payment instruments like Paytm or UPI balances are not VDAs. The key differentiator is the cryptographic generation and blockchain-based existence.

How Is Crypto Income Taxed in India? – Section 115BBH

Section 115BBH, introduced by the Finance Act 2022 and effective from April 1, 2022 (FY 2022–23 onward), creates a standalone tax regime for income arising from the transfer of Virtual Digital Assets. It overrides all other provisions of the Act with respect to such income.

Key Features of Section 115BBH

• Flat 30% tax rate: Income from transfer of VDAs is taxed at a flat rate of 30%, plus applicable surcharge and health and education cess (effective rate of 31.2% for individuals below ₹50 lakh, higher with surcharge).
• No slab benefit: Even if your total income including crypto gains falls within the basic exemption limit, the crypto portion is taxed at 30%. However, if your total taxable income after all deductions (but before adding crypto gains) is below the exemption limit, certain judicial interpretations suggest the basic exemption may absorb part of the crypto income—but this is a grey area. Practically, most tax professionals recommend paying 30% on all VDA gains to avoid litigation.
• Only cost of acquisition deductible: You can reduce the sale consideration only by the cost of acquisition of that specific VDA. No other deduction—trading fees, gas fees, platform charges, internet costs, or even depreciation—is allowed.
• No set-off of losses: If you incur a loss from one VDA transaction, it cannot be set off against gains from another VDA, nor against any other head of income (salary, business, house property, etc.). The loss effectively lapses.
• No carry forward: Since losses cannot be set off even in the same year, the question of carrying forward to future years does not arise. Each year's VDA taxation stands entirely on its own.

Section 115BBH Tax Calculation Example

Rahul, a salaried employee in the 30% slab, bought 1 Ethereum for ₹2,00,000 in April 2024 and sold it in February 2026 for ₹3,50,000. His taxable VDA gain is:

Sale consideration: ₹3,50,000
Less: Cost of acquisition: ₹2,00,000
Taxable gain: ₹1,50,000

Tax at 30% = ₹45,000
Cess at 4% = ₹1,800
Total tax on crypto gain = ₹46,800

Rahul cannot claim deduction for the trading fees (say ₹1,500) he paid to the exchange. He also cannot set off this gain against any other losses he may have. If Rahul had sold another crypto at a loss of ₹60,000 in the same year, that loss is completely ignored—he still pays tax on the full ₹1,50,000 gain from Ethereum.

TDS on Crypto Transactions – Section 194S

Section 194S, effective from July 1, 2022, mandates deduction of tax at source at the rate of 1% on the transfer of any Virtual Digital Asset. This is not an additional tax; it is a withholding mechanism to track transactions and ensure compliance.

Who is responsible for deducting TDS under Section 194S?

• Exchanges and platforms: If the transaction occurs on a registered crypto exchange (Indian exchanges like CoinDCX, WazirX, ZebPay), the exchange is responsible for deducting TDS at 1% and depositing it with the government.
• P2P transactions: In peer-to-peer or direct wallet-to-wallet transfers where no exchange intermediary is involved, the buyer (the person paying consideration) is responsible for deducting TDS at 1% before making payment to the seller.

TDS Threshold Limits

Crypto-to-Crypto Trades Are Taxable Events

A common misconception is that only crypto-to-INR (fiat) conversions trigger tax. Under Indian law, every transfer of a VDA is a taxable event. This means swapping Bitcoin for Ethereum, or USDT for any altcoin, is treated as a transfer. You are deemed to have sold one VDA (triggering capital gain/loss calculation) and acquired another.

For example, if you bought Bitcoin for ₹3,00,000 and later swapped it for Ethereum when Bitcoin's market value was ₹5,00,000, you have a taxable gain of ₹2,00,000 on the Bitcoin leg—even though you never received any INR. The Ethereum acquired now has a cost basis of ₹5,00,000 for future calculations. TDS at 1% also applies to both sides of the swap if routed through an exchange.

Gifts of Cryptocurrency – When Are They Taxable?

Receiving cryptocurrency as a gift is not automatically tax-free. Under Section 56(2)(x), if any person receives a Virtual Digital Asset without consideration (i.e., as a gift) and the aggregate fair market value of such VDAs received during the financial year exceeds ₹50,000, the entire value becomes taxable in the recipient's hands under the head "Income from Other Sources." The tax rate is the normal slab rate applicable to the recipient—not the 30% Section 115BBH rate—because it is a gift, not a transfer.

However, there is an important exception: gifts received from relatives (as defined under Section 56(2)(x)—spouse, siblings, lineal ascendants/descendants, etc.) are exempt regardless of the amount. Gifts received on the occasion of marriage are also exempt. But a gift from a friend, colleague, or any non-relative exceeding ₹50,000 in aggregate VDA value per year is taxable.

Airdrops, Staking Rewards, and Mining Income

The tax treatment of airdrops and staking rewards has been a subject of debate. Based on prevailing interpretations and guidance:

• Airdrops: Tokens received for free through airdrops are treated similarly to gifts. If the FMV exceeds ₹50,000 in aggregate from non-relatives, the value is taxable under Section 56(2)(x) at slab rates. When these tokens are later sold, the FMV at the time of receipt becomes the cost of acquisition for Section 115BBH calculation.
• Staking rewards: Rewards earned through staking (locking tokens to support network operations) are arguably income from other sources at the time of receipt. The FMV when the reward is credited to your wallet may be taxable at slab rates. On subsequent sale, the gain (sale price minus FMV at receipt) is taxed at 30% under Section 115BBH.
• Mining income: Income from mining is generally treated as business income if conducted with commercial intent and regularity. However, the cost of mining (hardware, electricity) may not be fully deductible given Section 115BBH's restriction on deductions. This area remains legally unsettled, and professional guidance is advisable.

Reporting Crypto Income in ITR – Schedule VDA

From AY 2023–24 onward, ITR forms (ITR-2, ITR-3, ITR-4 as applicable) include a dedicated Schedule VDA where you must report every crypto transaction. The schedule requires:

• Date of acquisition and date of transfer for each VDA
• Cost of acquisition (in INR)
• Sale consideration (in INR)
• Gain or loss on each transaction

If you have multiple transactions, you need to report each one individually or provide a consolidated summary with supporting detail. Exchanges typically provide an annual transaction statement that helps compile this data. If you use decentralized exchanges (DEXs) or wallet-to-wallet transfers, you must self-compute and maintain records.

The TDS deducted under Section 194S will appear in your Form 26AS and AIS. You must reconcile the TDS credit with the income reported in Schedule VDA. Any mismatch can trigger a notice from the CPC. DisyTax's guide on AIS vs Form 26AS mismatch explains how to handle differences.

Tax Saving and Compliance Strategies for Crypto Investors

Given the rigid framework of Section 115BBH, traditional tax-saving avenues like Section 80C, 80D, or capital gains exemptions under Section 54/54F do not apply to VDA gains. The 30% tax is absolute. However, you can still optimize your overall tax position:

• Hold for long term: Since there is no distinction between short-term and long-term for VDAs (all are taxed at 30%), holding period does not reduce the tax rate. But deferring the sale to a year where your other income is lower may reduce the surcharge impact.
• Use the basic exemption limit: If your total income from all sources (salary, interest, rent) is below the taxable threshold, any VDA gains added may still fall within the exemption limit, potentially reducing effective tax. However, this is not a settled position and professional advice is recommended.
• Strategic gifting to lower-slab family members: Gifting INR to a spouse or parent in a lower tax bracket, who then purchases crypto, does not trigger clubbing under Section 64 (since clubbing applies to income from assets transferred, not to assets purchased independently by the recipient from gifted cash). However, ensure the cash gift is properly documented.
• Reconcile TDS meticulously: The 1% TDS on high-frequency trading can accumulate significantly. Claiming full TDS credit in your ITR requires accurate reporting. Missing TDS credit is a direct loss of your own money.
• Maintain detailed records: The only way to defend your cost of acquisition figures is to have exchange statements, wallet transaction logs, and bank records matching every trade. In a scrutiny assessment, the onus is entirely on you.

Common Mistakes Crypto Investors Make

• Ignoring crypto-to-crypto trades: Many taxpayers only report crypto-to-INR sales, completely missing swaps between tokens. Every swap triggers a taxable event.
• Assuming losses offset gains: The most painful learning curve—booking a ₹2 lakh loss on one coin and a ₹2 lakh gain on another does NOT result in nil tax. You pay 30% on the ₹2 lakh gain and get zero relief for the loss.
• Not reporting airdrops and staking rewards: The tax department now has access to blockchain analytics and exchange data. Unreported airdrops can surface during assessment.
• Deducting gas fees and trading charges: Many taxpayers reduce their sale consideration by platform fees before reporting. Section 115BBH explicitly disallows this.
• Ignoring TDS reconciliation: If exchange-deducted TDS shows ₹15,000 but you report only ₹10,000 worth of gains (or none), the CPC system flags this as a mismatch, leading to a demand notice or scrutiny query.
• Not reporting P2P transactions: Direct wallet transfers and P2P trades often go unreported. But with increasing KYC integration and bank account monitoring, these are becoming visible to the department.

Penalties and Consequences of Non-Compliance

Failure to report VDA income or under-reporting it can attract:

• Interest under Section 234A/B/C for late filing or shortfall in advance tax.
• Penalty under Section 270A at 50% of the tax payable on under-reported income (200% for misreporting if deliberate concealment is established).
• Penalty under Section 271C for failure to deduct TDS where the buyer was obligated (P2P scenarios).
• Reassessment under Section 148 if crypto income escaping assessment is detected later—the time limit for reopening can extend to 10 years in certain cases.
• Prosecution under Section 276C in extreme cases of willful tax evasion, though this is rare and reserved for substantial, deliberate fraud.

For more details on how penalties are levied, refer to DisyTax's guide on common income tax penalties and Section 270A penalty orders.

Step-by-Step Process to File Crypto Taxes Correctly

1. Download transaction history from all exchanges and wallets. Compile a complete list of every buy, sell, swap, airdrop receipt, staking reward, and gift received during the financial year. If using DEXs, export your wallet transaction history using tools like Etherscan or BscScan.
2. Convert all transactions to INR value as on the transaction date. Use the exchange rate on the platform where the trade occurred, or a reliable crypto price aggregator like CoinMarketCap's historical data. Document the source of your conversion rate.
3. Identify each taxable event. Mark every sale, swap, and transfer as a separate taxable event. For swaps, treat it as two transactions: sale of Token A (calculate gain/loss) and purchase of Token B (record cost basis).
4. Calculate gain/loss for each transaction. Gain = Sale consideration (INR) minus Cost of acquisition (INR). For airdropped or gifted tokens, cost of acquisition = FMV on date of receipt (if already taxed as gift income).
5. Total all gains separately from all losses. Remember: only gains matter. Sum all your gains—this is the amount taxable at 30%. Losses are ignored entirely.
6. Apply 30% tax + cess + surcharge. Multiply total VDA gains by 30%, add 4% cess, and applicable surcharge based on your total income slab.
7. Fill Schedule VDA in your ITR. Report each transaction date-wise with cost, sale value, and gain. If you have hundreds of trades, consolidate them securely but ensure the summary matches exchange records.
8. Reconcile TDS with Form 26AS and AIS. Match every TDS entry with your reported transactions. Flag any discrepancies before filing.
9. Pay advance tax if applicable. If your total tax liability (including crypto tax) exceeds ₹10,000, you must pay advance tax by the due dates (June 15, September 15, December 15, March 15) to avoid interest under Section 234B and 234C.
10. File your ITR before the due date. For individuals not subject to audit, the due date for AY 2026–27 is July 31, 2026. Late filing attracts a fee under Section 234F and loss of certain benefits.

Latest Updates for FY 2025–26 / AY 2026–27

As of the Union Budget 2026–27 and the Finance Bill 2026 process, no significant amendments have been announced that alter the core crypto taxation framework under Section 115BBH or the TDS mechanism under Section 194S. The 30% flat tax rate, the non-set-off rule for losses, and the 1% TDS continue to apply.

Key developments to watch:

• Income Tax Act 2025 (New Act): The new Income Tax Act, effective from AY 2026–27, retains the VDA taxation provisions with renumbered sections. The substance of Section 115BBH and Section 194S is preserved. Taxpayers should verify the new section numbers in the latest ITR forms. DisyTax's Income Tax Bill 2025 guide covers the transition.
• Possible regulatory framework: The government has indicated that a comprehensive crypto regulatory framework is under discussion, which may bring clarity on DeFi, staking, and the legal status of various tokens. No legislation has been enacted as of May 2026.
• Exchange compliance: Indian crypto exchanges continue to enhance their compliance infrastructure, providing detailed annual tax statements and integrating directly with the TDS filing system. Most major exchanges now offer downloadable tax reports compatible with ITR filing requirements.
• International reporting: India's commitment to the OECD's Crypto-Asset Reporting Framework (CARF) means that cross-border crypto data sharing between tax authorities may begin in the coming years, increasing the visibility of offshore exchange holdings.

FAQ – Crypto Taxation in India (15+ Questions)

Conclusion – Staying Compliant in the Crypto Tax Era

Crypto taxation in India, under Section 115BBH and Section 194S, is one of the most stringent in the world. The 30% flat rate with no loss set-off and minimal deductions leaves little room for tax planning within the VDA asset class itself. The 1% TDS mechanism ensures that the government has near-real-time visibility into exchange-based transactions, and non-compliance carries genuine financial consequences.

For salaried employees dabbling in crypto, freelancers receiving payments in crypto, business owners diversifying into digital assets, and NRIs with Indian crypto holdings, the message is clear: every transaction matters, every gain is taxable, and every loss is your own. Accurate record-keeping, honest ITR reporting, and timely advance tax payments are not optional—they are the baseline for staying on the right side of the law.

At DisyTax, we help individual taxpayers and businesses navigate the evolving crypto tax landscape with professional ITR filing, TDS reconciliation, advance tax planning, and compliance reviews tailored to your specific crypto footprint.