Crypto & VDA Tax Under Income Tax Act 2025: 30% Tax, No Loss Set-Off Explained

1. Overview

Virtual Digital Assets (VDA) — including cryptocurrency like Bitcoin, Ethereum, and Dogecoin; NFTs (Non-Fungible Tokens); and other digital tokens — are a distinct class of assets under Indian tax law since the Finance Act 2022.

Before 2022, there was significant debate about whether crypto gains were capital gains, business income, or "other sources" income. The Finance Act 2022 ended this uncertainty by introducing Section 115BBH (now Sections 102–106 of ITA 2025) — creating a completely separate tax regime for VDA with a flat 30% rate and some of the harshest restrictions in the entire Income Tax Act.

2. What is a Virtual Digital Asset (VDA)?

Section 102 of ITA 2025 defines VDA as any information or code or number or token generated through cryptographic means or otherwise, providing a digital representation of value that can be transferred, stored, or traded electronically. This includes:

• All cryptocurrencies: Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin, Dogecoin, etc.
• NFTs (Non-Fungible Tokens): Digital art, gaming items, collectibles
• DeFi tokens and governance tokens
• Any other digital assets notified by Central Government

NOT a VDA: Gift cards, loyalty points, in-game items (unless specifically notified), digital rupee (CBDC) issued by the RBI.

3. VDA Tax Rate: 30% Flat

Under Section 102 of ITA 2025, income from the transfer of VDA is taxed at a flat rate of 30%. This rate applies regardless of:

• How long you held the VDA (there is no short-term/long-term distinction)
• Your income level (30% applies even if your total income is in the 5% slab)
• The regime you have chosen (new or old — VDA is always 30%)

Plus 4% Health & Education Cess = effective rate of 31.2% (before surcharge). Plus applicable surcharge for high incomes.

4. What Deductions Are Allowed?

Only one deduction is allowed against VDA income: the cost of acquisition.

• Cost of acquisition = the price you actually paid to acquire the VDA
• No other expense is deductible: no mining hardware costs, no exchange fees, no internet charges, no electricity costs for mining
• No indexed cost of acquisition — cost is taken at actual purchase price without inflation adjustment

Example (Illustrative only): You bought 1 Bitcoin at ₹25,00,000. You sold it at ₹40,00,000. Gain = ₹15,00,000. Tax at 30% = ₹4,50,000 + 4% cess = ₹4,68,000.

5. No Set-Off or Carry Forward of VDA Losses

This is the most restrictive aspect of VDA taxation. Under Section 103 of ITA 2025:

• Losses from VDA transfers cannot be set off against any other income — not against VDA profits from other coins, not against capital gains, not against salary
• Losses cannot be carried forward to future Tax Years
• Each VDA transaction is essentially standalone — profits are taxed, losses are ignored

6. VDA Gifts and Received-as-Gift Situations

• If you gift VDA to someone: The recipient pays 30% tax on the Fair Market Value (FMV) of the VDA received as gift, under Section 94 read with Section 102 of ITA 2025. This is because gifts above ₹50,000 from non-relatives are taxable.
• If you receive VDA as part of salary/remuneration: It is treated as salary income for the employer's tax computation, and then the employee pays 30% on any subsequent gains when they sell.

7. Crypto Mining Income

Income from cryptocurrency mining is treated as VDA income and taxed at 30%. The cost of acquisition for mined crypto is considered nil (since you did not purchase it — you created it through mining). Therefore, the entire sale proceeds from mined crypto (minus zero cost) is taxed at 30%.

8. TDS on VDA Transactions: Section 393

Under Section 393 of ITA 2025 (old Section 194S), TDS at 1% is deducted on VDA transactions:

• Threshold: ₹50,000 per year (₹10,000 for specified persons like related parties)
• Deductor: The person making payment for VDA purchase
• On crypto exchanges: the exchange deducts 1% TDS at the time of the transaction
• In P2P (peer-to-peer) transactions: the buyer deducts 1% TDS from the payment

9. How to Report VDA in ITR

• VDA income is reported in the ITR under Schedule VDA (specific schedule for virtual digital assets)
• Each transaction must be reported: date of acquisition, date of sale, sale price, cost of acquisition, gain/loss
• TDS deducted on VDA is reflected in Form 26AS and can be claimed as credit
• Form applicable: ITR-2 (if only capital gains and VDA) or ITR-3 (if business income also)

10. Latest Updates Under ITA 2025

• VDA provisions moved from Section 115BBH/194S of ITA 1961 to Sections 102–106 and 393 of ITA 2025
• 30% flat rate, no set-off, no carry-forward — all unchanged
• Mining income: cost of acquisition = nil — confirmed in ITA 2025
• Digital Rupee (CBDC) issued by RBI is NOT a VDA — exempt from VDA tax provisions

11. Why TaxClue

VDA tax compliance requires tracking every transaction — every buy, sell, swap, and gift across multiple wallets and exchanges. Missing any transaction or computing cost of acquisition incorrectly leads to penalties. TaxClue helps crypto investors compute VDA income, file the VDA schedule in ITR, and claim TDS credit correctly. Contact us for crypto tax filing support.

12. Resources & Checklist

• ☐ Download complete transaction history from all crypto exchanges
• ☐ Calculate cost of acquisition for each VDA holding
• ☐ Compute gain/loss for each sale transaction (no netting of losses)
• ☐ Check TDS deducted in Form 26AS for VDA transactions
• ☐ Report all VDA transactions in Schedule VDA of ITR
• ☐ Pay advance tax if VDA gains are substantial during the year

13. Contact Us

Crypto tax in India is complex and unforgiving — 30% flat tax with no loss set-off. TaxClue's specialists help you navigate VDA taxation correctly and file your ITR with confidence. Contact us for crypto tax advisory.