VDA Crypto and NFT Taxation Under ITA 2025: 30% Flat Tax, No Set-Off Rules

Virtual Digital Assets (VDAs) — including cryptocurrencies like Bitcoin, Ethereum, and NFTs — are taxed under a special regime in the Income Tax Act 2025. The provisions, first introduced in 2022 and now consolidated in ITA 2025, impose a flat 30% tax with minimal deductions and strict no-loss-set-off rules.

What is a Virtual Digital Asset (VDA)?

VDA is defined under ITA 2025 to include:

• Cryptocurrency (Bitcoin, Ethereum, USDT, etc.)
• Non-Fungible Tokens (NFTs)
• Any other digital asset notified by the Central Government

VDA does not include digital representations of currency (e-rupee/CBDC), gift cards, or gaming tokens (non-transferable in-game assets).

Tax Rate: 30% Flat on All VDA Gains

Unlike other capital assets, VDA gains are taxed at a uniform 30% regardless of holding period. There is no distinction between short-term and long-term for VDA. The 30% rate applies before surcharge and 4% cess, making the maximum effective rate approximately 39%.

Allowable Deductions

Only one deduction is permitted: the cost of acquisition (purchase price) of the VDA. No other expenses are deductible, including:

• Transaction fees / gas fees / platform fees
• Mining costs
• Interest on borrowed funds used to buy VDA
• Exchange subscription fees

No Set-Off or Carry Forward of VDA Losses

This is a critical restriction: losses from VDA transactions cannot be set off against any other income — not salary, not business income, not even gains from other VDAs. Similarly, VDA losses cannot be carried forward to future Tax Years. Each VDA transaction is essentially standalone for tax purposes.

TDS on VDA Transfers

Every person responsible for paying any sum for transfer of a VDA must deduct TDS at 1% of the gross consideration. Key points:

• TDS applies even if the transaction is on a foreign exchange
• Crypto exchanges (CEX) typically deduct TDS automatically
• For P2P transactions, the buyer is responsible for TDS deduction
• Annual threshold before TDS: Rs. 50,000 (for specified persons) or Rs. 10,000 (others)

Computing VDA Income

Gifting and Receiving VDA

If VDA is received as a gift, it is taxable as income from other sources in the hands of the recipient (similar to cash gifts). The recipient's cost of acquisition becomes the FMV on the date of gift. Subsequent sale of gifted VDA attracts 30% tax on gains.

VDA Mining Income

VDA received through mining is taxable as income from other sources at FMV on the date of receipt. When later sold, the FMV on the date of mining becomes the cost of acquisition, and the gain is taxed at 30%.

ITR Filing for VDA Income

VDA income is reported in Schedule VDA in the relevant ITR form (ITR-2 or ITR-3). Taxpayers must maintain records of each transaction — exchange, price, date, cost of acquisition. The annual information statement (AIS) will reflect TDS from exchanges for reconciliation.