Crypto Tax India — 30% Tax and 1% TDS on Virtual Digital Assets FY 2025-26

Crypto Tax India — 30% Tax and 1% TDS on Virtual Digital Assets FY 2025-26

India's crypto tax framework is one of the most aggressive in the world. Under Section 115BBH of the Income-tax Act 1961, every rupee of profit on transferring a Virtual Digital Asset (VDA) — crypto, NFTs, tokens — is taxed at a flat 30%, with no slab benefit, no Section 87A rebate, and almost no deductions. Layer on the 1% TDS under Section 194S, add the Income Tax Department's growing ability to cross-check exchange data against your Annual Information Statement (AIS), and the compliance picture is stark. For FY 2026-27 (Assessment Year 2027-28), the rules are unchanged — but enforcement intensity is not.

What Counts as a Virtual Digital Asset

Before getting into tax rates, you need to be clear on what the law taxes. Section 2(47A) of the Income-tax Act defines a VDA to include:

• Any information, code, number or token generated through cryptographic means and providing a digital representation of value — this covers Bitcoin, Ethereum, and essentially every cryptocurrency listed on Indian exchanges.
• Any Non-Fungible Token (NFT), though the government retains the right to carve out certain NFTs by notification.
• Any other digital asset notified by the Central Government.

What is not a VDA: gift cards, mileage points, subscriptions, and — critically — foreign currency or Indian fiat in digital form. A CBDC (digital rupee) is expressly excluded. This distinction matters if you are staking a stablecoin pegged to USD: the stablecoin itself qualifies as a VDA; the USD peg does not change that classification.

Section 115BBH — The 30% Flat Tax, Explained Fully

The rate and its scope

Any income arising from the transfer of a VDA is charged to tax at 30% under Section 115BBH. Transfer includes sale, exchange, barter, or even using a VDA to purchase goods or services. Swapping Bitcoin for Ethereum on an exchange is a transfer of Bitcoin — you have a taxable event on the Bitcoin leg at that point.

The effective tax rate for most individuals is:

• 30% + 25% surcharge (if total income exceeds Rs. 5 crore) + 4% Health and Education Cess = up to 42.744%
• For most retail traders, no surcharge applies, so the effective rate is 30% + 4% cess = 31.2%

The deduction rule: cost of acquisition only

The only deduction Section 115BBH permits is the cost of acquisition — what you originally paid to buy the VDA, in rupees. Nothing else:

This is a hard legislative position, not a gray area. The Memorandum to the Finance Act 2022 explicitly stated that no deduction in relation to infrastructure or otherwise is permitted.

The loss ring-fence: the harshest part

Section 115BBH(2) contains two sub-clauses that most crypto holders underestimate:

1. Loss from one VDA cannot be set off against gain from another VDA — even in the same financial year.
2. VDA losses cannot be carried forward to any subsequent assessment year.

This is categorically different from equity shares, where you can set off short-term capital losses against short-term capital gains. The VDA ring-fence is absolute.

Worked Example — Calculating Your Actual Tax Liability

Let's take a real scenario for FY 2026-27.

Rajan's crypto portfolio — FY 2026-27:

Naïve calculation (wrong): Net gain = 8,00,000 − 1,80,000 + 70,000 = Rs. 6,90,000 → Tax = Rs. 2,14,900

Correct calculation under Section 115BBH:

• T1 gain: Rs. 8,00,000 → Tax = Rs. 8,00,000 × 30% = Rs. 2,40,000 (+ cess: Rs. 9,600 = Rs. 2,49,600)
• T2 loss: Rs. 1,80,000 → Cannot be set off. Dead. No deduction anywhere.
• T3 gain: Rs. 70,000 → Tax = Rs. 70,000 × 30% = Rs. 21,000 (+ cess: Rs. 840 = Rs. 21,840)

Total tax = Rs. 2,71,440 — Rs. 56,540 more than the naïve calculation.

Rajan also gets no comfort from Section 87A. Even if his salary income is Rs. 5,00,000 (below the rebate threshold), the 87A rebate is unavailable against VDA income. His salary may attract zero tax after rebate; his VDA gains are fully taxable regardless.

Section 194S — 1% TDS on Every VDA Transfer

Who deducts, who pays, and by when

Section 194S, introduced with effect from 1 July 2022, requires the buyer (or the exchange acting as facilitator) to deduct 1% TDS at the time of credit or payment, whichever is earlier, on the full consideration paid for a VDA transferred by a resident.

Thresholds for FY 2026-27:

Once the threshold is breached, TDS applies on the entire payment from rupee one, not just the excess.

Exchange trades vs. P2P trades

When you trade on CoinDCX, WazirX, Binance India, or any SEBI/FIU-registered exchange, the exchange acts as the responsible person and handles TDS deduction and deposit. You receive a TDS certificate (Form 16A) or can see the TDS in your AIS under Section 194S.

For peer-to-peer (P2P) or OTC trades, the buyer must:

1. Deduct 1% TDS from the payment.
2. Deposit using Form 26QE (for specified persons) or Form 26Q (for others) by the 30th of the month following the month of deduction.
3. Issue Form 16A to the seller within 15 days of the due date for filing Form 26QE/26Q.

Failing to deduct TDS makes the buyer a "defaulter in deduction" and triggers interest at 1% per month (Section 201(1A)) plus potential penalty under Section 271C equal to the TDS amount itself.

TDS and your refund position

The 1% TDS is deducted on the gross consideration — not on your profit. If you buy Bitcoin at Rs. 20 lakh and sell at Rs. 22 lakh, TDS is deducted on Rs. 22 lakh (= Rs. 22,000), not on Rs. 2 lakh gain.

Your actual tax on the Rs. 2 lakh gain = Rs. 60,000 + cess. The Rs. 22,000 TDS already paid reduces this, leaving Rs. 38,000 + cess payable. If your overall tax liability is below TDS deducted, you get a refund — but you must file the ITR to claim it.

How to Report VDA Income in Your ITR — Step by Step

VDA transactions are reported in Schedule VDA of ITR-2 and ITR-3. ITR-1 is not available to any taxpayer with VDA income.

Step 1: Gather your source data

• Download the year-end transaction statement from every exchange you used (CSV or PDF format).
• Download your AIS and TIS from the income-tax portal (incometax.gov.in → e-File → Income Tax Return → View AIS).
• Collect any Form 16A or Form 26AS TDS certificates showing Section 194S deductions.

Step 2: Reconcile exchange data against AIS

The AIS will show every 194S-deducted transaction. Match line by line against your exchange statement. Common mismatches:

• Exchange reports transaction date; AIS may show settlement date.
• Exchange shows USD-equivalent; AIS shows rupee conversion at a different rate.
• Multiple accounts on the same exchange create duplicate entries.

Raise an AIS feedback for any incorrect entries before filing your ITR. Go to AIS → Click the information → Submit Feedback → Information is incorrect.

Step 3: Populate Schedule VDA

For each VDA transaction, you need:

You must enter each transaction separately. You cannot aggregate all BTC trades into one line. If you made 200 trades, that is 200 rows. Most CA software handles this via CSV import — export your exchange's transaction history in the correct format.

Step 4: Claim TDS credit

In the Tax Details schedule, verify that Section 194S TDS appears correctly. Cross-check with Form 26AS Part-B. If TDS is missing, contact the exchange's compliance team — the error is on their Form 26QE filing, not on you.

Step 5: Pay advance tax if required

If your total tax liability (including VDA gains) exceeds Rs. 10,000 in a year, you are required to pay advance tax in four instalments:

• 15 June: 15% of estimated tax
• 15 September: 45% cumulative
• 15 December: 75% cumulative
• 15 March: 100% cumulative

TDS under 194S counts as advance tax paid. But if your gains are front-loaded (big profit in April–August), under-payment of the first two instalments attracts interest under Section 234C. Many crypto traders overlook this and face a surprise interest bill at the time of filing.

Airdrops, Staking Rewards, Mining and NFT Sales

Airdrops and staking rewards

When a protocol drops tokens into your wallet or credits staking rewards, the fair market value (FMV) at the time of receipt is taxable as Income from Other Sources under Section 56(2). You pay tax at your applicable slab rate on that FMV, and your cost of acquisition for the future sale becomes that same FMV.

When you subsequently sell those tokens, the difference between sale price and FMV-at-receipt is taxed at 30% under Section 115BBH. There is no double counting — the two tax events are distinct.

Mining income

Mining rewards follow the same logic as airdrops: FMV at receipt is income from other sources; subsequent sale gain is VDA income. However, if mining is your primary business, the mining income may constitute business income and you may claim mining-related business expenses against it — but the disposal of the mined VDA still falls under 115BBH.

NFTs — creator vs. investor

An individual artist who creates and sells an NFT is likely earning business income or professional income — not VDA income — because the NFT is their product, not an investment. Tax is at slab rates, and expenses (design, minting, gas fees) may be deductible as business expenses.

A person who buys an NFT and resells it is transferring a VDA, and the 30% Section 115BBH rate applies with no expense deduction beyond cost of acquisition.

The classification depends on facts; there is no published CBDT circular that resolves this conclusively. Document your intent and activity pattern.

Gifts of VDA — Section 56(2)(x)

If you receive a gift of VDA worth more than Rs. 50,000 in aggregate in a financial year from a person who is not a relative (as defined in the Act), the entire fair market value of the gift is taxable as income from other sources in your hands in the year of receipt.

Relatives under the Act include spouse, siblings, siblings-in-law, lineal descendants, lineal ancestors, and their spouses. A friend, business associate, or a DAO treasury distribution does NOT qualify as relative.

If the gift is from a relative, or is received on the occasion of marriage, or is received under a will / inheritance, it is exempt from tax at the time of receipt. The heir takes the original cost of the deceased as their own cost of acquisition.

Cross-Border Crypto and FEMA Compliance

Section 115BBH taxes income. FEMA governs the movement of capital. Both apply independently.

Key FEMA positions for FY 2026-27:

• Outward remittances under the Liberalised Remittance Scheme (LRS) of USD 250,000 per year per individual are permitted for permissible capital account transactions. However, the Reserve Bank of India's current position does not explicitly permit LRS remittances for purchasing crypto on foreign exchanges. Using LRS for foreign crypto purchases is legally risky.
• If you hold crypto on a foreign exchange or wallet and qualify as Resident and Ordinarily Resident (ROR) under Section 6 of the IT Act, you must disclose those holdings in Schedule FA (Foreign Assets) of your ITR. Failure to disclose attracts penalty of Rs. 10 lakh per year under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015.
• Tax on foreign crypto gains is still under Section 115BBH — the location of the exchange does not create an exemption.

Common Mistakes That Attract Scrutiny

Mistake 1: Netting losses against gains in the ITR

The single most expensive error. Section 115BBH(2) prohibits it. Even if your own CA software defaults to netting, override it. Enter each profitable trade and each loss trade as separate Schedule VDA rows. The loss rows simply show zero taxable income (you cannot enter a negative figure).

Mistake 2: Ignoring the AIS before filing

The department's AIS is populated with 194S TDS data from exchanges and Statement of Financial Transactions (SFT) filings. If your Schedule VDA figures do not reconcile with AIS, you will receive a Section 143(1) mismatch intimation — or worse, a Section 148 notice for reassessment.

Mistake 3: Not paying advance tax on mid-year gains

If you book a large VDA gain in May or June, you owe 15% of your estimated annual tax by 15 June. Missing this triggers interest at 1% per month on the shortfall under Section 234C. A Rs. 8 lakh gain in May means approximately Rs. 2,49,600 tax, 15% due by June = Rs. 37,440. If not paid, interest of ~Rs. 374 per month starts accruing.

Mistake 4: Claiming 87A rebate against VDA income

The Finance Act 2023 clarified (with retrospective effect from AY 2024-25) that the Section 87A rebate is not available against special-rate income, including VDA income. Do not claim it. Attempts to claim it have been rejected by the income-tax portal itself during processing.

Mistake 5: Treating swap transactions as non-taxable

Swapping ETH for USDT is a transfer of ETH. You have a taxable VDA gain or loss on the ETH leg at the rupee fair market value of USDT received. Each swap is two legs — one disposal (taxable) and one acquisition (establishing cost basis for the next disposal).

Mistake 6: Forgetting to report airdrop income

If you received staking rewards or airdrop tokens worth Rs. 50,000 in FY 2026-27 and did not report them under "Income from Other Sources," you have understated income. The department can pick this up from exchange-reported SFT data.

Key Takeaways

• 30% flat tax under Section 115BBH applies to all VDA transfers in FY 2026-27 (AY 2027-28) — your holding period is irrelevant.
• Only cost of acquisition is deductible; exchange fees, gas fees and hardware costs are not allowable.
• Loss ring-fence is absolute: no cross-VDA set-off within the year; no carry-forward to future years.
• 1% TDS under Section 194S is deducted by the exchange on every qualifying transaction — check your AIS to confirm it is correctly reported before filing.
• Schedule VDA in ITR-2 or ITR-3 requires transaction-level detail; ITR-1 is not available for VDA taxpayers.
• Airdrops and staking rewards are first taxed as income from other sources at FMV on receipt; the subsequent gain on sale is a separate 115BBH event.
• Reconcile AIS, exchange statements and Schedule VDA before you file — mismatches trigger automated intimations and can escalate to reassessment notices.