Crypto and VDA Taxation Under Income Tax Act 2025: What the New Rules Say

The Income Tax Act, 2025 - effective from 01 April 2026 - carries forward India’s strict crypto taxation framework with important updates. The 30% flat tax on VDA transfers and the 1% TDS remain unchanged in substance, but the new Act renumbers the governing sections, explicitly adds “crypto-asset” to the VDA definition, and introduces a dedicated penalty regime for crypto-asset reporting failures.

This guide maps the old and new section numbers, explains every taxable event, walks through the calculation with examples, covers the Budget 2026 penalty proposals, and outlines what the OECD CARF framework means for Indian crypto investors.

What Is a Virtual Digital Asset (VDA) Under the Income Tax Act 2025?

A Virtual Digital Asset (VDA) is defined under Section 2(47A) of the Income Tax Act, 1961 (carried into the Income Tax Act, 2025) as any information, code, number, or token - not being Indian or foreign currency - generated through cryptographic means or otherwise, providing a digital representation of value that can be exchanged with or without consideration, transferred, or stored electronically.

The Finance Act 2025 expanded this definition by adding sub-clause (d) to explicitly include “crypto-asset” from 01 April 2026. This closes any interpretational gap - Bitcoin, Ethereum, Solana, meme coins, exchange tokens, stablecoins, and NFTs all fall squarely within the VDA definition.

For investors who need to report VDA transactions, our crypto ITR filing guide provides the step-by-step Schedule VDA reporting process.

Key Terms You Should Know

• Section 115BBH (IT Act 1961): The original provision taxing VDA transfer income at 30%. Continues under the corresponding section of IT Act 2025.
• Section 194S (IT Act 1961): TDS at 1% on consideration for transfer of VDA. Applies to both exchange and P2P transactions.
• Schedule VDA: The dedicated schedule in ITR-2 and ITR-3 for transaction-wise reporting of VDA income. Requires date of acquisition, date of transfer, cost of acquisition, sale consideration, and resulting income.
• Cost of Acquisition: The purchase price of the VDA. The only deduction allowed against VDA transfer income. No other expenses (gas fees, brokerage, advisory) are deductible.
• Section 446 (IT Act 2025) - Penalty: New penalty framework for crypto-asset reporting failures. Rs 200/day for non-furnishing of statement under Section 509(1). Rs 50,000 for inaccurate information.
• Section 509(1) (IT Act 2025): Requires prescribed reporting entities (crypto exchanges, platforms) to furnish crypto-asset transaction statements. From 01 April 2026.
• OECD CARF: Crypto-Asset Reporting Framework. India plans adoption by April 2027 for cross-border crypto transaction reporting.
• PMLA Registration: 97 crypto platforms registered under the Prevention of Money Laundering Act by December 2024. Platforms must report user transactions to authorities.

Who Must Pay Tax on Crypto and VDA Income?

Every individual, HUF, firm, company, or any other person who transfers a VDA and earns income from such transfer is liable to pay 30% tax under the VDA regime, regardless of income level or holding period.

• Crypto traders who buy and sell Bitcoin, Ethereum, altcoins, or stablecoins on Indian or international exchanges
• NFT creators and buyers who sell NFTs for a profit
• DeFi users earning from staking, yield farming, or liquidity provision - rewards are taxable as income at receipt, then 30% on transfer
• Miners and validators earning crypto as rewards - taxable as income at receipt (slab rates), then 30% on subsequent transfer
• P2P traders on platforms like Binance P2P - buyer must deduct 1% TDS; seller pays 30% on profit
• Recipients of crypto gifts exceeding Rs 50,000 from non-relatives - taxable at slab rates under Section 56(2)(x)
• Indian residents with crypto held on international platforms - must report global holdings and gains

F&O traders dealing in crypto derivatives on regulated exchanges follow the same reporting principles. See our guide on ITR for F&O traders for the business income classification framework.

Legal Framework: Section Mapping - IT Act 1961 vs IT Act 2025

Note: The substantive tax treatment of VDAs (30% rate, no loss set-off, only COA deduction) is unchanged. The key Budget 2026 additions are the penalty framework for reporting entities and the explicit inclusion of “crypto-asset” in the VDA definition.

How to Calculate Crypto Tax: Step-by-Step Process

1. Consolidate all VDA transactions for the tax year. Download transaction history from every exchange, wallet, and P2P platform. Include timestamps, quantities, prices in INR, and transaction type (buy/sell/swap/gift/mine/stake).
2. Identify each taxable transfer event. Selling crypto for INR, swapping crypto-to-crypto, spending crypto on goods/services, and gifting crypto are all taxable events. Simply holding (HODLing) is not a taxable event.
3. Calculate cost of acquisition for each transfer. Use the INR purchase price. For crypto received as a gift, use the value at which it was taxed as income. For mined/staked crypto, use the value at receipt. FIFO method is generally recommended for consistency.
4. Compute profit per transaction: Sale consideration minus cost of acquisition. No other deductions allowed. Gas fees, exchange fees, internet costs, and advisory fees cannot reduce taxable income.
5. Apply 30% flat tax plus 4% cess. The effective minimum rate is 31.2%. Add surcharge if total income exceeds Rs 50 lakh (10% to 37% depending on slab).
6. Claim 1% TDS credit. TDS deducted by exchanges under Section 194S appears in Form 26AS. Claim this credit against your total crypto tax liability. The TDS is not an additional tax - it’s an advance payment.
7. Report in Schedule VDA of ITR-2 or ITR-3. Enter transaction-wise details: date of acquisition, date of transfer, cost, sale consideration, head of income (capital gains or business). File by 31 July (ITR-1/2) or 31 August (ITR-3/4).

Documents and Records Needed for Crypto Tax Filing

• Transaction history from all crypto exchanges (CoinDCX, WazirX, CoinSwitch, Binance, etc.)
• Wallet transaction logs for DeFi, staking, and on-chain transfers
• P2P transaction records with buyer/seller details and TDS challans
• Form 26AS - shows 1% TDS deducted under Section 194S
• AIS (Annual Information Statement) - exchange-reported transaction data
• Cost of acquisition records for each crypto asset (purchase receipts, exchange confirmations)
• Mining/staking reward records with INR valuation at date of receipt
• Gift deed or transfer record for crypto received as gift (for Section 56(2)(x) calculation)
• Foreign asset disclosure - if crypto is held on international platforms worth > Rs 20 lakh, Schedule FA in ITR is mandatory

Crypto Tax Calculation: Worked Example for FY 2025-26

The following table shows a worked example for an investor with multiple crypto transactions.

Add 4% cess: Rs 3,30,000 × 4% = Rs 13,200. Total tax: Rs 3,43,200.

TDS already deducted (1% on sell consideration): Rs 30,000 + Rs 6,000 + Rs 2,500 = Rs 38,500.

Net tax payable: Rs 3,43,200 - Rs 38,500 = Rs 3,04,700.

Note: The Rs 2 lakh ETH loss is wasted - it cannot reduce the BTC or SOL profit. It cannot be carried forward. This is the harshest feature of the VDA tax regime. Each transaction is taxed independently.

Common Mistakes to Avoid in Crypto Tax Filing

Mistake 1: Setting off crypto losses against other crypto gains. Losses from one VDA cannot offset gains from another VDA. If you lost Rs 5 lakh on Ethereum and gained Rs 10 lakh on Bitcoin, your taxable income is Rs 10 lakh - not Rs 5 lakh. Each profitable transfer is taxed independently. Review our capital gains rules to understand how VDA treatment differs from equity.

Mistake 2: Claiming exchange fees, gas fees, or advisory charges as deductions. Under the VDA regime, only cost of acquisition is deductible. No other expense - including gas fees, exchange commissions, internet costs, or crypto tax software fees - can reduce your taxable VDA income.

Mistake 3: Not reporting crypto-to-crypto swaps. Swapping Bitcoin for USDT, or Ethereum for Solana, is a taxable transfer. The fair market value of the crypto received is the sale consideration. Many investors ignore swaps because no INR was involved - but the tax department tracks these through exchange data.

Mistake 4: Forgetting to report staking rewards, airdrops, and mining income. Crypto received through staking, airdrops, or mining is taxable as income at receipt (at slab rates under Income from Other Sources). When you later sell the received crypto, the profit is taxed again at 30%. The cost of acquisition is the value at which it was taxed as income.

Mistake 5: Not disclosing crypto held on international platforms. Indian residents holding crypto on foreign platforms (Binance Global, Coinbase, Kraken) must disclose these in Schedule FA (Foreign Assets) of the ITR if the total value exceeds Rs 20 lakh. Non-disclosure can attract penalties under the Black Money Act.

Penalties for Crypto Tax Non-Compliance Under IT Act 2025

The penalty framework for crypto has been significantly tightened from 01 April 2026.

Under Section 446 of the IT Act 2025 (Budget 2026 proposal), prescribed reporting entities (crypto exchanges, platforms registered under PMLA) that fail to furnish crypto-asset transaction statements under Section 509(1) face a penalty of Rs 200 per day for the period of default.

If such entities furnish inaccurate information and do not correct it, or fail to comply with due diligence requirements, a penalty of Rs 50,000 may be imposed.

For individual taxpayers, under Section 270A, non-disclosure of VDA income is treated as under-reporting (50% penalty) or misreporting (200% penalty) of income. Since exchanges now report to the department under PMLA and the upcoming Section 509 framework, any mismatch between your ITR and exchange-reported data will be automatically flagged.

Additionally, failure to deduct TDS under Section 194S on P2P transactions makes the buyer liable for the TDS amount plus interest at 1.5% per month and penalty equal to the TDS amount.

How VDA Taxation Connects with CARF, PMLA, and Global Reporting

India’s crypto tax framework is rapidly integrating with global reporting standards. As of December 2024, 97 cryptocurrency platforms were registered under the Prevention of Money Laundering Act (PMLA). These platforms must report user transaction data to the Financial Intelligence Unit (FIU-IND), creating a parallel data trail alongside Form 26AS and AIS.

India plans to adopt the OECD Crypto-Asset Reporting Framework (CARF) by April 2027. Under CARF, crypto exchanges and wallet providers will automatically exchange user transaction data across borders. This means Indian residents using international platforms will have their transaction data shared with Indian tax authorities - closing the offshore loophole.

For taxpayers managing income tax return filing, the implication is clear: voluntary disclosure is always cheaper than detection. The penalty for non-disclosure (50-200% under Section 270A) far exceeds the 30% tax on the income itself.

Crypto Tax vs Equity Tax vs F&O Tax: Key Differences

Key Takeaways

Income from transfer of Virtual Digital Assets (VDAs) - including cryptocurrencies, NFTs, and tokens - continues to be taxed at a flat 30% (plus 4% cess and applicable surcharge) under the Income Tax Act, 2025, with no holding period distinction and no loss set-off or carry-forward.

The Finance Act 2025 expanded the VDA definition to explicitly include “crypto-asset” as sub-clause (d), effective 01 April 2026. This removes any interpretational ambiguity about whether specific crypto tokens fall within the taxable definition.

Budget 2026 introduced a penalty framework under Sections 446 and 509(1) of IT Act 2025 for crypto-asset reporting entities - Rs 200/day for non-furnishing and Rs 50,000 for inaccurate information. This tightens the reporting ecosystem around crypto transactions.

Only cost of acquisition is deductible against VDA transfer income. No other expenses - gas fees, exchange fees, advisory charges - can reduce taxable income. Losses from one VDA cannot offset gains from another VDA or any other income.

India plans to adopt the OECD Crypto-Asset Reporting Framework (CARF) by April 2027, which will enable automatic cross-border exchange of crypto transaction data. Indian residents using international platforms should ensure complete disclosure in Schedule FA of their ITR.

Need Help Filing Your Crypto Tax Return?

With the 30% flat tax, no loss set-off, mandatory Schedule VDA reporting, and a tightening penalty regime, accurate crypto tax filing has never been more important. From tracking cost of acquisition across multiple exchanges to claiming TDS credit and avoiding foreign asset disclosure penalties, the process requires precision.

Explore our expert crypto tax filing for end-to-end compliance support including transaction reconciliation, Schedule VDA preparation, and Form 26AS verification.

For queries, reach out at +91 945 945 6700 or WhatsApp us directly.