Crypto and VDA Tax Under Income Tax Act 2025: 30% Flat Rate, 1% TDS Explained

title: "Crypto and VDA Tax Under Income Tax Act 2025: 30% Flat Rate, 1% TDS Explained" description: "How cryptocurrency and Virtual Digital Assets (VDA) are taxed under the Income Tax Act 2025. 30% flat tax, 1% TDS, no loss set-off, and reporting requirements for Indian crypto investors." date: "2026-02-21" category: "Tax Planning" tags: ["crypto tax new income tax act 2025", "VDA tax india 2026", "cryptocurrency tax india", "bitcoin tax 2026", "crypto TDS"] readTime: "12 min read" featured: false author: "Taficon Team" image: "/og-image.png" slug: "crypto-vda-tax-new-income-tax-act-2025"

Cryptocurrency taxation in India has been one of the most debated topics since the Finance Act 2022 introduced the Virtual Digital Asset (VDA) framework. The Income Tax Act 2025 retains and codifies these provisions — meaning the 30% flat tax and 1% TDS rules continue for Tax Year 2026-27 and beyond.

This guide covers everything crypto investors need to know about their tax obligations under the new Act.

Check Your Tax Liability →

VDA Taxation Under Income Tax Act 2025: The Framework

The Income Tax Act 2025 preserves the VDA taxation framework introduced by the Finance Act 2022 (which amended the 1961 Act via what was then Section 115BBH for tax and Section 194S for TDS).

What Counts as a "Virtual Digital Asset"?

Under the new Act, VDAs include:

• Cryptocurrencies (Bitcoin, Ethereum, etc.)
• Non-Fungible Tokens (NFTs)
• Any other digital asset notified by the Central Government
• Utility tokens, governance tokens, and similar instruments on blockchain

Not included:

• Gift cards / vouchers
• Subscription-based memberships
• Traditional financial instruments in digital form (digital bonds, demat shares)

The Core Tax Rate: 30% on VDA Gains

The most important rule — unchanged under the 2025 Act:

All income from transfer of VDA is taxed at a flat 30% (plus applicable surcharge and 4% cess)

No Deductions Allowed

Unlike regular business income or capital gains, VDA income has no deductions except the cost of acquisition:

Applicable Surcharge on VDA Income

Note: For VDA income specifically, surcharge is capped at 15% (per Finance Act 2022 provisions preserved in 2025 Act). The effective maximum rate is therefore 30% + 15% surcharge + 4% cess = ~35.88%.

Computation Example

Tax Year 2026-27:
VDA bought: Tax Year 2025-26 for ₹3,00,000
VDA sold in Tax Year 2026-27 for ₹8,00,000

Gains: ₹8,00,000 - ₹3,00,000 = ₹5,00,000
Tax at 30%: ₹1,50,000
Cess at 4%: ₹6,000
Total Tax on VDA: ₹1,56,000

(Salary income of ₹12L taxed separately under regular slabs)

1% TDS on Crypto Transactions

In addition to the 30% tax at filing, there is a 1% TDS deducted at source on every VDA transaction above the threshold.

TDS Threshold

Who Deducts TDS?

Peer-to-Peer (P2P):

• Buyer deducts 1% from the payment to the seller
• Buyer deposits with the government
• Buyer files TDS return

Exchange (Indian registered):

• Exchange deducts 1% from the seller's proceeds
• Exchange files TDS return
• Form 16A issued to seller

Foreign Exchanges:

• No Indian deductor — the seller is responsible for reporting and paying 30% tax at filing
• No TDS mechanism applicable

TDS Credit

The 1% TDS deducted is credited against your total tax liability. If your 30% tax on VDA gains for the year is ₹1,50,000 and TDS of ₹40,000 was already deducted, you pay ₹1,10,000 more at filing time. If excess TDS was deducted (you made losses on net but TDS was on individual transactions), claim a refund while filing.

No Loss Set-Off: The Harsh Rule

This is the rule that frustrates crypto investors the most — and it continues under the 2025 Act:

Loss from VDA cannot be set off against:

• Gains from another VDA (you cannot net gains and losses across different coins)
• Any other income head (salary, business, capital gains from stocks)

Loss cannot be carried forward to future years.

What This Means Practically

Tax Year 2026-27:
Bitcoin gain: +₹5,00,000
Ethereum loss: -₹2,00,000

Tax treatment:
- Bitcoin gains: ₹5,00,000 × 30% = ₹1,50,000 tax
- Ethereum loss: NOT deductible — cannot reduce Bitcoin gains
- Effective tax: ₹1,50,000 (even though net gain is only ₹3,00,000)

Effective tax rate on net gain: 50% — much higher than the headline 30%

This "no set-off" rule is one of the most punitive aspects of VDA taxation. Tax planning must account for this.

Gifting and Receiving VDA

Receiving VDA as Gift

If you receive VDA as a gift (without payment):

• If from specified relative: Generally exempt (same as gift tax exemption for movable property from relatives)
• If from non-relative: VDA fair market value > ₹50,000 → entire amount taxable as "Income from Other Sources" at slab rate (not the 30% VDA rate)

Giving VDA as Gift

When you transfer VDA as a gift:

• This is a "transfer" — 30% tax applies on the difference between fair market value and your cost of acquisition

VDA Mining Income

Mining income (new coins as block rewards) is taxed as:

• Income from Other Sources at slab rate (not 30% flat)
• The fair market value on the date of receipt is your income
• When you subsequently sell the mined coins, your cost of acquisition = FMV on the date you received them
• Gains on sale = Sale price - FMV on date of mining receipt → taxed at 30%

Example:
Mined Bitcoin when value = ₹30,00,000 → Income from Other Sources: ₹30,00,000 (at slab)
Later sold when value = ₹50,00,000
Sale gains: ₹50,00,000 - ₹30,00,000 = ₹20,00,000 → VDA income at 30%

Staking and Airdrop Income

Staking Rewards

Staking rewards (receiving tokens for validating transactions on Proof-of-Stake networks) are treated similarly to mining income:

• Taxed as "Income from Other Sources" at slab rate in the year of receipt
• Subsequent sale taxed at 30% on gains over FMV at receipt

Airdrops

Airdropped tokens:

• If received for free (marketing airdrops): Taxed as gift income — "Income from Other Sources" at slab rate if FMV > ₹50,000 (from non-relative)
• Subsequent sale: 30% VDA tax on gains over FMV at airdrop date

Record Keeping for Crypto Tax Compliance

Under the new Act, taxpayers must maintain adequate records:

What to Maintain

For each VDA transaction, keep:

• Date of purchase
• Amount purchased (in units and INR equivalent)
• Name of exchange / counterparty
• Date of sale
• Sale consideration (INR)
• TDS certificate (Form 16A) from exchange

Valuation for INR Equivalent

• Use the INR price on the exchange at the date/time of transaction
• For foreign exchanges, convert at the RBI reference rate on the transaction date

Reporting in ITR

VDA income is reported in a dedicated schedule in the ITR form. You must report:

• Each VDA transaction separately (or summarised by asset)
• TDS deducted (from Form 26AS / AIS)
• Computation of gains
• Final tax payable

Using Foreign Crypto Exchanges

Many Indian investors use Binance, Kraken, and other foreign exchanges. Key points:

1. No TDS is deducted — your responsibility to compute and pay tax at 30%
2. Transaction history: Download complete records — you will need them for ITR
3. INR equivalent: Convert using RBI reference rate or reasonable published rate
4. AIS reporting: CBDT has been receiving data from exchanges — your transactions may appear in AIS. Reconcile before filing.
5. Foreign asset reporting: If the aggregate VDA holdings on foreign exchanges exceed ₹3.5 lakh at any time during the year, it must be reported in Schedule FA (Foreign Assets) in ITR

Smart Tax Planning for Crypto Investors

While the law is strict, some legitimate planning is possible:

1. Harvest Gains in Years with Other Losses (Not VDA Losses)

VDA losses can't be set off, but if you have capital losses from stocks, you can set those against stock gains — and use your remaining income capacity for VDA reporting efficiently.

2. Spread Large Sales Across Tax Years

Since the ₹50,000 TDS threshold is per year, very small transactions may fall below reporting thresholds. For large holdings, consider timing sales across two Tax Years to manage cash flow (though tax itself is determined by the year of sale, not TDS).

3. Keep Detailed Records for FIFO/LIFO

India has not mandated a specific method (FIFO/LIFO/specific identification) for matching purchase lots to sales. Maintaining detailed records allows you to compute gains in a manner that's most beneficial while remaining compliant.

4. Consider Employer NPS to Reduce Slab Income

While VDA income is at 30% flat, your slab income (salary, etc.) is at normal rates. Reducing slab income via employer NPS doesn't reduce VDA tax but reduces overall tax burden.

Key Takeaways

1. 30% flat tax on all VDA (crypto) gains — no deductions except cost of acquisition.
2. 1% TDS on every crypto sale above threshold — credit it against total tax.
3. No loss set-off — losses from one crypto cannot reduce gains from another.
4. Mining/staking income taxed at slab rate at receipt, then 30% on subsequent sale gains.
5. Gifts of VDA are "transfers" — 30% tax applies even without cash consideration.
6. Foreign exchange users must self-report — no TDS mechanism for foreign platforms.
7. All provisions are unchanged in the 2025 Act — only section numbers change.

Calculate Your Crypto Tax Liability →

FAQ

Q1. Does the 30% crypto tax rate change under Income Tax Act 2025?

No. The 30% flat tax on VDA gains is unchanged under the 2025 Act. The new Act retains the same tax rate, the "no deduction" rule (except cost of acquisition), and the "no loss set-off" rule. Only section numbers change.

Q2. Is 1% TDS applied on every crypto transaction?

Yes, TDS at 1% is applied on every VDA transfer (sale) above the threshold — ₹50,000 per year for regular taxpayers, ₹10,000 for specified persons. Indian exchanges deduct it automatically. For P2P trades, the buyer must deduct and deposit the TDS.

Q3. Can I deduct transaction fees (gas fees, exchange fees) when computing crypto gains?

No. Under the VDA tax regime, only the "cost of acquisition" is deductible. Transaction fees, electricity costs, mining costs, and exchange commissions are not deductible from VDA income.

Q4. I made profits on Bitcoin but lost money on Ethereum. Can I net them out?

No. VDA losses cannot be set off against VDA gains — or any other income. Each VDA is treated independently. You pay 30% on Bitcoin profits even if Ethereum is at a loss. The net economic gain is irrelevant for tax purposes.

Q5. How are NFTs taxed under the new Act?

NFTs are classified as VDAs under the 2025 Act. Sale of NFTs is taxed at 30% flat on gains (sale proceeds minus cost of creation/acquisition). Creating and selling an NFT as income from professional work may have a different character — consult a CA for specific scenarios.

Q6. Do I need to report crypto holdings even if I didn't sell?

You don't pay tax on unsold holdings, but you must report foreign VDA holdings in Schedule FA (Foreign Assets) in your ITR if their aggregate value exceeds ₹3.5 lakh at any point during the Tax Year. Holdings on Indian exchanges are reflected in AIS.

Q7. Is crypto-to-crypto exchange (swapping Bitcoin for Ethereum) taxable?

Yes. A crypto-to-crypto swap is considered a "transfer" under the VDA provisions. When you swap Bitcoin for Ethereum, it's treated as selling Bitcoin for its INR equivalent at that moment — you pay 30% tax on gains since your Bitcoin purchase. The INR value at the time of swap becomes your cost of acquisition for Ethereum.

Q8. What is the penalty for not declaring crypto income?

Undisclosed VDA income can lead to: assessment of evaded tax + interest at 1%/month + penalty of 50% to 200% of tax evaded + prosecution for concealment of income. The CBDT has been actively receiving data from exchanges and cracking down on non-compliance.