Cryptocurrencies such as Bitcoin and Ethereum (and many other popular ones) have rapidly transitioned from being niche digital assets to investment opportunities in India, attracting the attention of investors and tax authorities.
The Finance Act, 2022 introduced a framework to specifically tax VDAs, including cryptocurrencies, treating them as
virtual digital assets
(VDAs).
Income from the transfer of VDAs is subject to a flat tax rate of 30%, along with any applicable surcharge and cess. The 2025 Budget proposals have widened the definition of VDAs to include any crypto-asset which is a digital representation of value that relies on cryptographically secured distributed ledger or similar technology to validate and secure transactions.
If you are a salaried individual, a 1% TDS is applicable on transfer of the VDA if the transaction amount exceeds 10,000. For business persons (below specific thresholds), the ceiling is set higher at 50,000.
The only deduction allowed from the sale proceeds is the cost of acquisition. Transaction fees and other related costs, however, cannot be claimed as deduction when calculating taxable income.
Investors must also take note of a significant provision that losses from VDAs cannot be set off against any other income, nor can losses from one VDA be offset against gains from another.
Illustration
Raj incurred loss of 13,00,000 on sale of Ethereum and a gain of 16,00,000 from sale of Bitcoins. Additionally, he also has long-term capital gains of 12,50,000 on sale of listed equity shares:
Raj is not allowed to adjust the loss of 3,00,000 from the sale of Ethereum against the gain on sale of Bitcoins. Hence, Raj will have to pay tax at 30% plus applicable surcharge and cess on a profit of 6,00,000.
Raj also cannot set-off the loss of 3,00,000 from the sale of Ethereum against the sale of listed shares and has to pay tax on sale of listed shares at the rate of 12.5%, as the capital gains is long term.
Loss arising from sale of Ethereum cannot be carried forward to future financial years either.
You have to pay crypto tax when…
- You sell crypto to buy goods or services.
- You exchange it for other cryptocurrencies.
- Receive it as a gift.
Don’t hide your income
Individuals involved in cryptocurrency trading must report their income from VDAs in Schedule VDA in the applicable annual Income Tax Returns (ITR), which would be ITR-2 or ITR-3. The schedule asks for details like date of acquisition, date of transfer, cost of acquisition and consideration received. It is quite critical to disclose VDA income, as any under-reporting or mis-reporting of income can lead to penalties. Additionally, there will be interest implications on any unpaid tax.
