A fintech company approached us with a question that seemed simple: 'We accept Bitcoin as payment for our SaaS product. How do we report this in our ITR?' The answer required navigating five separate compliance layers: (1) converting the Bitcoin receipt to INR for revenue recognition, (2) computing VDA income under Section 115BBH when the Bitcoin is later sold, (3) deducting 1% TDS under Section 194S if the company acquires crypto from a resident, (4) reporting all VDA transactions in Schedule VDA of ITR-6, and (5) paying advance tax on estimated crypto gains quarterly. The 'simple' question required 12 pages of workpapers.
This guide provides the complete compliance requirements list for Indian businesses that touch crypto in any way - buying, selling, holding, accepting as payment, paying employees in crypto, mining, staking, or operating an exchange. Whether you are a trading company, a SaaS business accepting crypto, or a treasury function holding Bitcoin, this is your definitive reference.
What Is VDA Taxation and Why Must Every Crypto-Touching Business Understand It?
VDA (Virtual Digital Asset) taxation is the specific tax framework introduced by the Finance Act 2022 under Section 115BBH of the Income Tax Act, 1961. It imposes a flat 30% tax on income from the transfer of any VDA - including cryptocurrencies (Bitcoin, Ethereum, etc.), NFTs, tokens, and any other digital asset defined under Section 2(47A). This framework operates independently of the standard capital gains regime - there is no concessional rate, no holding period benefit, no indexation, and no loss set-off.
Every business that touches crypto must understand this framework because: (1) the 30% rate applies regardless of whether the VDA income is classified as business income or capital gains, (2) TDS at 1% under Section 194S applies when a business buys or acquires VDA from a resident, (3) the no-loss-set-off rule means a business cannot offset crypto losses against its regular business profits, and (4) failure to report VDA transactions in Schedule VDA triggers penalties from Rs 200/day to Rs 50,000 for incorrect reporting. For businesses using ITR for crypto traders (know more) support, compliance with all five layers is mandatory.
Key Terms You Should Know
- Section 2(47A) - VDA Definition: Any information, code, number, or token generated through cryptographic means. Includes all cryptocurrencies (Bitcoin, Ethereum, stablecoins), NFTs, utility tokens, and any other digital asset notified by the government. Excludes Indian Digital Rupee (CBDC) issued by RBI.
- Section 115BBH - 30% Flat Tax: Income from transfer of VDA taxed at 30% + applicable surcharge + 4% cess. Only deduction allowed: cost of acquisition. No other expense (transaction fees, gas fees, exchange commissions) is deductible. Applies regardless of business or capital gains classification.
- Section 194S - 1% TDS: TDS at 1% on consideration paid for VDA transfer to a resident. Threshold: Rs 50,000/year for specified persons (individuals/HUFs with turnover ≤ Rs 1 crore business or ≤ Rs 50 lakh profession); Rs 10,000 for all others. Exchange typically deducts for on-platform trades.
- Schedule VDA: Dedicated schedule in ITR forms for reporting VDA transactions line by line - date of acquisition, date of transfer, sale price, cost of acquisition, head of income (capital gains or business income), and TDS deducted under Section 194S.
- No Loss Set-Off Rule: The most restrictive feature of VDA taxation. Losses from one VDA transfer cannot be set off against: (a) gains from another VDA, (b) any other head of income, or (c) carried forward to future years. Each profitable transaction is taxed; each loss is absorbed entirely by the taxpayer.
- Cost of Acquisition - Special Cases: For gifted crypto: the cost to the previous owner. For mined/staked/airdropped crypto: the amount treated as income at the time of receipt (if taxable as 'other income' at slab rates). For crypto with no determinable cost: cost is treated as nil.
- Budget 2026 - Exchange Reporting: Crypto trading platforms must submit detailed transaction statements to the Income Tax Department. Penalty: Rs 200/day for failure to report; Rs 50,000 for incorrect reporting not rectified.
Which Businesses Must Comply with Crypto Tax Requirements?
- Companies (Pvt Ltd, public) that trade crypto as part of treasury operations or business - file ITR-6 with Schedule VDA
- Crypto exchanges and platforms operating in India - TDS compliance under Section 194S as payer, exchange reporting obligations, GST registration
- SaaS/e-commerce businesses accepting crypto as payment - revenue recognition + VDA income on conversion/sale
- Businesses paying contractors or employees partially in crypto - TDS obligations on VDA component under Section 194S
- Proprietorships and individuals running crypto trading as a business - ITR-3 with Schedule VDA. For income tax return filing (know more), the choice between ITR-2 (investor) and ITR-3 (business) depends on the nature and frequency of activity
- LLPs and partnership firms with crypto holdings - ITR-5 with Schedule VDA
- Mining/staking operations - income from mining is taxable at receipt (slab rates as 'other income'); subsequent sale taxed at 30% under Section 115BBH
- NFT creators and marketplaces - creation income may be classified as business income; sale of NFTs as VDA transfer under Section 115BBH
Legal Framework: The Complete Crypto Tax Structure for Businesses
| Component | Section | Rate/Threshold | Business Impact |
|---|---|---|---|
| VDA transfer income tax | Section 115BBH | 30% + surcharge + 4% cess | Flat rate on ALL VDA profits. No holding period benefit. No deduction except cost of acquisition. Applies to companies, LLPs, individuals alike. |
| TDS on VDA purchase | Section 194S | 1% of consideration | Business must deduct 1% TDS when buying crypto from a resident. Deposit by 7th of next month. File in TDS return (Form 26Q). |
| TDS threshold | Section 194S | Rs 50,000 (specified persons) / Rs 10,000 (others) | Once threshold crossed in a FY, TDS applies to every subsequent transaction. |
| Deductions allowed | Section 115BBH(2) | Only cost of acquisition | NO transaction fees, gas fees, mining costs, exchange commissions, or any other expense deductible. This is the harshest restriction. |
| Loss set-off | Section 115BBH(2) | Not allowed against ANY income | VDA losses cannot offset other VDA gains, business income, salary, or capital gains. No carry-forward. |
| Gift taxation | Section 56(2)(x) | Slab rates on receipt; 30% on subsequent sale | Crypto gift above Rs 50,000 taxable as 'other income.' Subsequent sale: 30% on gain above the value at which gift was taxed. |
| Mining/staking/airdrops | As applicable | Slab rates on receipt; 30% on subsequent transfer | Two-stage taxation: income at receipt, then VDA tax at sale. Cost of acquisition = value taxed at receipt. |
| Exchange reporting | Budget 2026 | Rs 200/day penalty for non-reporting | Platforms must submit transaction statements. Incorrect reporting: Rs 50,000 penalty. |
| Advance tax | Sections 234B/234C | 1% per month interest on shortfall | Businesses must include estimated VDA income in quarterly advance tax. Volatile crypto makes estimation challenging. |
The Complete Requirements List: Every Compliance Obligation
- Requirement 1: Maintain transaction-level records for every VDA trade. Date of acquisition, date of transfer, cost of acquisition (in INR), sale consideration (in INR), exchange used, wallet addresses. FIFO method recommended for cost basis determination. All amounts must be in INR - convert at the exchange rate on the date of transaction.
- Requirement 2: Deduct 1% TDS under Section 194S on VDA purchases from residents. If your business buys crypto from a resident individual or entity (including peer-to-peer), you must deduct 1% TDS on the consideration. Deposit by 7th of the following month. Include in quarterly TDS return (Form 26Q). For businesses handling TDS return filing (know more), add VDA TDS as a separate category in your TDS processing.
- Requirement 3: Compute VDA income under Section 115BBH - cost of acquisition is the ONLY deduction. Revenue minus cost of acquisition = taxable VDA income at 30%. No transaction fees, no gas fees, no exchange commissions, no mining hardware costs. For a business with Rs 10 lakh in crypto revenue and Rs 7 lakh cost of acquisition: taxable VDA income = Rs 3 lakh. Tax = Rs 3 lakh × 30% = Rs 90,000 + surcharge + cess.
- Requirement 4: Report ALL VDA transactions in Schedule VDA of your ITR. Every transaction - profitable or loss-making - must be reported line by line. Date of acquisition, date of transfer, sale price, cost of acquisition, head of income (CG or business), TDS deducted. Use ITR-6 (companies), ITR-5 (LLPs), ITR-3 (proprietors/individuals with business income), or ITR-2 (investors without business income).
- Requirement 5: Pay advance tax quarterly on estimated VDA income. If your total tax liability (including VDA tax) exceeds Rs 10,000, advance tax must be paid: 15% by 15 June, 45% by 15 September, 75% by 15 December, 100% by 15 March. Crypto volatility makes estimation difficult - update quarterly based on actual trades. Interest under Sections 234B/234C applies on shortfalls.
- Requirement 6: Do NOT set off VDA losses against other income or other VDA gains. This is mandatory compliance, not a choice. If your business has Rs 5 lakh profit on Bitcoin and Rs 3 lakh loss on Ethereum, the Rs 5 lakh is fully taxable at 30%. The Rs 3 lakh loss is irrecoverable - it cannot offset the Bitcoin gain, any other business income, or be carried forward.
- Requirement 7: Handle gifted, mined, staked, and airdropped crypto with two-stage taxation. Stage 1: At receipt - if the value exceeds Rs 50,000 (gifts from non-relatives) or any amount (mining/staking/airdrops), the value is taxable as 'Income from Other Sources' at slab rates. Stage 2: At sale - the gain above the Stage 1 value is taxed at 30% under Section 115BBH. Maintain records of the INR value at the date of receipt for cost basis.
- Requirement 8: Monitor GST implications on crypto transactions. GST applicability on VDA transactions remains unclear - the GST Council has not issued specific guidance. However, businesses operating as crypto exchanges or providing crypto-related services may need GST registration. Exchange service fees attract GST at 18%. For businesses filing GST return filing (know more), include crypto-related service charges in GST returns.
- Requirement 9: File the correct ITR form with Schedule VDA before the due date. Companies: ITR-6 (due 31 October for audit cases). Proprietors with business income: ITR-3 (due 31 August for non-audit). Investors without business income: ITR-2 (due 31 July). LLPs: ITR-5 (due 31 October if audit required). Late filing triggers Section 234F fee + Section 234A interest + loss of loss carry-forward (though VDA losses cannot be carried forward anyway).
- Requirement 10: Comply with exchange reporting norms (Budget 2026). If your business operates a crypto platform or facilitates VDA transactions, you must submit detailed transaction statements to the Income Tax Department. Failure: Rs 200/day penalty. Incorrect reporting: Rs 50,000 penalty. Even non-exchange businesses should retain exchange-generated transaction reports as primary documentation for ITR filing.
Documents and Records Every Crypto Business Must Maintain
- Exchange transaction history - download CSV from every exchange used (CoinDCX, WazirX, Binance, etc.) for the entire FY
- On-chain transaction records - for peer-to-peer transfers, DeFi transactions, and wallet-to-wallet movements not captured by exchange
- INR conversion records - exchange rate used for each transaction, source of rate (exchange rate, RBI reference rate)
- TDS certificates and challans - Section 194S TDS deducted by exchanges or by the business when purchasing crypto
- Mining/staking/airdrop records - date of receipt, INR value at receipt, wallet address, source (pool, protocol, project)
- Cost of acquisition workpapers - FIFO calculation for each VDA type showing how cost basis was determined
- Form 26AS and AIS - verify TDS credits and reported VDA transactions match your records
- Board resolution - if a company holds crypto as treasury asset, Board approval for crypto investment policy
- Accounting entries - journal entries for VDA acquisition, valuation, and disposal (IndAS/AS treatment)
- GST invoices - for any crypto-related service charges paid or collected
Crypto Tax Calculation: Worked Example for a Business
Scenario: A Pvt Ltd company (opting for Section 115BAA at 25.17%) made the following crypto transactions in FY 2025-26:
| Transaction | Details | VDA Income | Tax at 30% |
|---|---|---|---|
| Bought 2 BTC at Rs 35 lakh each; sold 1 BTC at Rs 42 lakh | Cost: Rs 35 lakh. Sale: Rs 42 lakh. Profit: Rs 7 lakh. | Rs 7,00,000 | Rs 2,10,000 |
| Bought 50 ETH at Rs 2 lakh each; sold 20 ETH at Rs 1.5 lakh each | Cost: Rs 40 lakh. Sale: Rs 30 lakh. Loss: Rs 10 lakh. | Rs 0 (loss NOT deductible) | Rs 0 (loss absorbed) |
| Received 0.5 BTC as payment for SaaS service | Revenue recognised at INR value on receipt date: Rs 21 lakh (business income). BTC held - no VDA transfer yet. | Rs 0 (no transfer) | Rs 0 (VDA tax triggers on sale) |
| Airdrop of 1,000 tokens valued at Rs 80,000 | Taxable as 'other income' at slab/corporate rates at receipt. Cost basis established at Rs 80,000. | Rs 0 (no transfer yet) | Rs 0 (VDA tax triggers on sale) |
| TOTAL VDA TAX | Rs 7,00,000 taxable | Rs 2,10,000 + surcharge + cess |
Critical observation: The Rs 10 lakh ETH loss CANNOT offset the Rs 7 lakh BTC gain. The company pays Rs 2.1 lakh+ tax on the BTC profit while absorbing Rs 10 lakh loss entirely. If this were traditional capital gains, the net gain would be negative (Rs 7L - Rs 10L = -Rs 3L) with no tax. Under Section 115BBH, the asymmetric no-loss-set-off rule makes crypto tax significantly harsher than traditional asset taxation. For businesses using tax planning services (know more), timing VDA disposals to minimise this asymmetry is the primary planning lever.
Common Mistakes Businesses Make in Crypto ITR Filing
Mistake 1: Netting VDA gains and losses before computing tax. Section 115BBH prohibits loss set-off. Each profitable transaction is taxed at 30% independently. Businesses cannot net gains and losses across different VDAs - or even across different transactions of the same VDA. The Schedule VDA requires line-by-line reporting precisely to enforce this rule.
Mistake 2: Deducting exchange fees, gas fees, and transaction costs from VDA income. Section 115BBH(2) allows ONLY cost of acquisition as a deduction. Exchange commissions, blockchain gas fees, withdrawal charges, and any other expense are NOT deductible. For a business buying BTC at Rs 35 lakh with Rs 5,000 exchange fee, the cost of acquisition is Rs 35 lakh - not Rs 35.05 lakh.
Mistake 3: Not deducting TDS under Section 194S on P2P purchases. When a business buys crypto from a resident individual (peer-to-peer, not through an exchange), the business is the 'buyer' and must deduct 1% TDS on the consideration paid. Failure to deduct: Section 201 penalty (equal to TDS amount) + interest. Failure to deposit: prosecution under Section 276B.
Mistake 4: Treating crypto-to-crypto swaps as non-taxable events. Swapping Bitcoin for Ethereum (or any VDA-to-VDA exchange) is a 'transfer' under Section 2(47A). Both legs of the swap - the disposal of the first VDA and the acquisition of the second - are taxable events. The sale consideration is the INR value of the VDA received at the time of swap.
Mistake 5: Not paying advance tax on volatile crypto gains. A business that makes Rs 20 lakh crypto profit in Q1 (April-June) owes 15% of estimated annual tax by 15 June. If no advance tax is paid and the full tax is paid at filing, Sections 234B and 234C interest (1% per month each) accumulate from the due date - potentially adding 10-15% to the total tax cost.
Penalties for Crypto Tax Non-Compliance
| Non-Compliance | Section | Penalty |
|---|---|---|
| Late filing of ITR with VDA income | Section 234F | Rs 5,000 fee (Rs 1,000 if income < Rs 5 lakh) |
| Interest on late payment of VDA tax | Section 234A | 1% per month on outstanding tax |
| Advance tax shortfall on VDA income | Section 234B/234C | 1% per month on shortfall per quarter |
| Failure to deduct TDS under 194S | Section 201 | Amount equal to TDS not deducted + 1.5%/month interest |
| Failure to deposit TDS | Section 276B | Prosecution - 3 months to 7 years imprisonment + fine |
| Under-reporting VDA income | Section 270A | 50% of tax on underreported amount (200% if misreporting) |
| Exchange non-reporting | Budget 2026 | Rs 200/day for failure to report; Rs 50,000 for incorrect reporting |
| Non-filing of ITR with VDA income | Section 276CC | Prosecution - 3 months to 7 years (if tax > Rs 25 lakh) |
How Crypto Tax Connects with GST, TDS, and Advance Tax
Crypto tax for businesses operates at three compliance intersections:
GST: The GST Council has not issued specific guidance on VDA taxation under GST. However, investigations have uncovered significant unpaid GST from crypto exchanges. Exchange service fees (trading commissions, withdrawal fees) attract 18% GST. If your business provides crypto-related services (exchange, custody, advisory), GST registration and compliance are likely applicable. For businesses filing GST return filing (know more), include crypto-related service revenue in GSTR-1/3B.
TDS: Section 194S creates a TDS obligation on VDA purchases. For on-exchange trades, the exchange typically handles TDS deduction. For P2P, OTC, or direct purchases, the buying business must deduct and deposit TDS. This must be included in quarterly TDS returns (Form 26Q). For businesses handling TDS return filing (know more), add a separate VDA category for Section 194S transactions.
Advance Tax: VDA income must be included in advance tax estimation. Given crypto volatility, update estimates quarterly. If a large gain occurs in Q1, 15% of the estimated annual VDA tax is due by 15 June. Under-estimation triggers Section 234C interest at 1% per month per quarter shortfall.
Crypto vs Traditional Assets: Tax Treatment Comparison
| Feature | Crypto (VDA) | Listed Equity Shares | Immovable Property | Debt Mutual Funds |
|---|---|---|---|---|
| Tax Rate | 30% flat (Section 115BBH) | LTCG 12.5% / STCG 20% | LTCG 12.5% (or 20% with indexation for pre-July 2024) | LTCG 12.5% / STCG slab rates |
| Holding Period Benefit | None - 30% regardless of period | 12 months for LTCG | 24 months for LTCG | 24 months for LTCG |
| Exemption | None | Rs 1.25 lakh/year LTCG | Section 54/54EC/54F | None |
| Deductions Allowed | Only cost of acquisition | Cost + improvement + transfer expenses | Cost + improvement + transfer expenses | Cost of acquisition |
| Loss Set-Off | NOT allowed against ANY income | STCL against any CG; LTCL against LTCG | Same as equity | Same as equity |
| Loss Carry-Forward | NOT allowed | 8 years | 8 years | 8 years |
| TDS on Purchase | 1% (Section 194S) | STT (not TDS) | 1% Section 194IA (property) | None |
| ITR Schedule | Schedule VDA | Schedule CG + 112A | Schedule CG | Schedule CG |
Key insight: Crypto is taxed more harshly than any traditional asset class in India. The combination of 30% flat rate (vs 12.5% LTCG for most assets), no holding period benefit, no loss set-off, and no exemptions makes VDA taxation the most restrictive regime in the Income Tax Act. For businesses, this means crypto profits are taxed at 30% even when the business itself may be taxed at 25.17% under Section 115BAA - the VDA rate overrides the corporate rate.
Key Takeaways
Every Indian business that buys, sells, holds, accepts, or pays in crypto has ten separate compliance obligations: maintain transaction records, deduct 1% TDS under Section 194S, compute VDA income under Section 115BBH (cost of acquisition is the ONLY deduction), report all transactions in Schedule VDA, pay advance tax quarterly, comply with the no-loss-set-off rule, handle two-stage taxation for mined/gifted crypto, monitor GST implications, file the correct ITR form by the due date, and comply with exchange reporting norms.
The no-loss-set-off rule under Section 115BBH(2) is the single most impactful feature of VDA taxation for businesses. A company with Rs 7 lakh BTC profit and Rs 10 lakh ETH loss pays Rs 2.1 lakh+ tax on the profit while absorbing the loss entirely. Under traditional capital gains, the net position would be a Rs 3 lakh loss with zero tax.
Budget 2026 maintained the existing 30% rate and 1% TDS framework but introduced stricter exchange reporting norms (Rs 200/day penalty for non-reporting, Rs 50,000 for incorrect reporting). The Income Tax Act, 2025 (effective 1 April 2026) retains Section 115BBH substance under restructured section numbers.
TDS compliance under Section 194S is frequently missed by businesses making P2P crypto purchases. The buying business must deduct 1% TDS on consideration paid to a resident - failure triggers Section 201 penalty (equal to TDS amount) and potential prosecution under Section 276B for non-deposit.
Crypto is taxed more harshly than any other asset class in India: 30% flat rate with no holding period benefit, no loss set-off, no exemptions, and only cost of acquisition as deduction. For businesses, the VDA rate overrides even the concessional corporate rate under Section 115BAA.
Need Help with Crypto ITR for Your Business?
Crypto tax compliance for businesses involves ten separate obligations - from TDS deduction and advance tax to Schedule VDA reporting and GST monitoring. The no-loss-set-off rule and cost-of-acquisition-only deduction make crypto the most restrictive tax regime in India, requiring precise record-keeping and strategic disposal timing.
Explore our ITR for crypto traders services (know more) for comprehensive business crypto compliance - from transaction record maintenance and Section 194S TDS processing to Schedule VDA preparation and advance tax estimation.
For queries, reach out at +91 945 945 6700 or WhatsApp us directly.
