Cryptocurrency and VDA Taxation explained: this guide covers what Cryptocurrency and VDA Taxation means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
1. VDA Taxation: The Complete Framework
Finance Act 2022 introduced a comprehensive Virtual Digital Asset (VDA) taxation framework in India — incorporated in ITA 2025. The framework is deliberately stringent: 30% flat tax, no deductions, no set-off, no carry-forward. This signals the government intent to allow crypto but tax it heavily to prevent it from being used for tax arbitrage.
2. VDA Definition: What Is Covered
Under Section 2(47A) equivalent of ITA 2025, VDA means:
- Any information, code, number, or token (not Indian currency or foreign currency) generated through cryptographic means or otherwise, with store of value and exchange functions
- NFTs: Non-fungible tokens
- Any other digital asset as the government may notify
- EXCLUDES: Indian rupee, foreign currencies, financial instruments covered under other laws (equity shares, mutual funds etc.)
3. The 30% Flat Tax: No Exceptions
Every rupee of VDA income is taxed at 30%:
- No basic exemption applies to VDA income
- Section 157 rebate (zero tax up to Rs 12L) does NOT apply to VDA income
- No LTCG/STCG distinction — same 30% rate regardless of holding period
- No indexation benefit
- Only cost of acquisition is deductible — no other expense (not gas fees, not exchange fees)
- No set-off of VDA loss against VDA gain from another VDA
- No carry-forward of VDA losses
4. What Triggers VDA Tax
Tax arises on any "transfer" of VDA — broadly defined:
- Sale for Indian Rupees (most common)
- Crypto-to-crypto swap (exchange — treated as sale of first VDA at FMV)
- NFT minting and sale
- NFT transfer
- Staking rewards (taxable at FMV when received)
- Mining income (taxable at FMV when mined)
- Airdrop receipt (taxable at FMV on receipt date)
- Crypto used to pay for goods/services (treated as sale at FMV)
- Liquidity pool tokens (may trigger on provision/withdrawal — evolving position)
5. TDS Under Section 67B: How It Works
1% TDS is deducted by the exchange or buyer on every VDA transfer:
- Threshold: Rs 10,000 per financial year aggregate transactions (Rs 50,000 for specified persons)
- Exchange platform deducts TDS when user sells or transfers on the platform
- For P2P trades: buyer is responsible for deducting 1% TDS from consideration
- TDS is on the full sale consideration — not the gain
- TDS appears in the seller Form 26AS as credit
- Example: sell Bitcoin worth Rs 5 lakh; TDS = Rs 5,000 (1%); gain = Rs 1 lakh; tax at 30% = Rs 30,000; credit Rs 5,000 TDS; pay Rs 25,000 balance
6. Crypto Gifting
When VDA is gifted:
- Sender: not taxable on the gift itself (no capital gains on gifting — but no deduction either)
- Recipient: if gift from non-relative and total gifts exceed Rs 50,000 in year, the FMV of VDA on the date of receipt is taxable as Other Sources income at slab rate
- On subsequent sale by recipient: VDA tax at 30% on (sale price minus FMV at receipt — the earlier Other Sources income amount)
- Gift from relative: exempt from Other Sources tax but still taxed at 30% when sold
7. International VDA Transactions
VDA held on foreign exchanges or self-custody wallets:
- Must be disclosed in Schedule FA (foreign assets) if resident Indian
- Income from sale of VDA on foreign exchange is still taxable in India at 30%
- No TDS on foreign exchange transactions — resident must pay advance tax
- FEMA: buying VDA using remitted foreign exchange counts towards LRS limit ($250K/year)
- PMLA (Prevention of Money Laundering Act): VDA service providers are reporting entities — transactions reported to FIU
8. Reporting in ITR
Schedule VDA (introduced in ITR-2 and ITR-3 from AY 2023-24) requires:
- Each VDA category separately: Bitcoin, Ethereum, NFT, other
- For each: date of acquisition, cost, date of transfer, consideration, gain
- Aggregate gains: total VDA income taxed at 30%
- TDS credits claimed in Schedule TDS
- Foreign VDA: also reported in Schedule FA
9. Why TaxClue
Active crypto traders with dozens of transactions across multiple exchanges need systematic record-keeping and accurate Schedule VDA filing. TaxClue compiles exchange statements, computes VDA income, and files ITR accurately. Contact us under ITA 2025.