Crypto / VDA taxation in India — the complete guide

The four-rule summary

Rule	What it means	Section
1. Flat 30% tax	All VDA gains taxed at 30% + 4% cess (~31.2%). No slab benefit, no LTCG concession.	Sec 115BBH
2. No loss set-off	Loss from one VDA cannot offset gain from another. Cannot carry forward. No set-off against any other income head.	Sec 115BBH(2)
3. 1% TDS at source	Exchange / buyer deducts 1% on each transfer (subject to thresholds). Reflects in 26AS.	Sec 194S
4. Disallowed expenses	Only cost of acquisition is deductible. No exchange fees, no platform charges, no infrastructure costs.	Sec 115BBH(1)

What counts as a "VDA"?

Section 2(47A) defines Virtual Digital Assets broadly. Includes:

• Cryptocurrencies — Bitcoin, Ethereum, Solana, USDT, USDC, etc.
• NFTs — non-fungible tokens (with limited exceptions for gift cards / vouchers)
• Other digital tokens — DAO tokens, governance tokens, utility tokens, stablecoins

Excluded (so far): Indian rupee, foreign currency, gift cards, redeemable points (subject to clarification by CBDT notification).

The 30% tax — how it's computed

For every transfer of a VDA in the FY:

Taxable gain = Sale consideration − Cost of acquisition

That's it. No indexation. No 12.5% LTCG concession. No 87A rebate. The flat 30% applies regardless of holding period or your slab.

The 1% TDS u/s Sec 194S

Effective from 1 July 2022:

• Indian exchanges deduct 1% TDS on every sell trade (above the threshold)
• Threshold: ₹10,000 / year for individuals (₹50,000 for specified persons)
• P2P trades: buyer is the deductor
• Reflected in your 26AS within 7 days of the transaction

Important: 1% TDS doesn't change your 30% liability. It's a credit against the final 30% tax — claimed when you file ITR. If you over-paid TDS but earned losses, you get the TDS as a refund (cannot offset against other income but at least the TDS comes back).

What you can and cannot deduct

Item	Deductible?	Reason
Purchase price of the VDA	✓ Yes	Cost of acquisition explicitly allowed
Exchange trading fees	✗ No	Sec 115BBH(1) — no other deductions
Wallet / custody charges	✗ No	Same
Hardware wallet purchase	✗ No	Infrastructure, not COA
Internet / electricity (mining)	✗ No	Infrastructure
Brokerage / advisory fees	✗ No	Same
STT / transaction tax	N/A	STT doesn't apply to VDA

Special situations

Mining

Mined coins → taxed as income from other sources at FMV on date of receipt. When sold subsequently, the difference between sale price and FMV at receipt is treated as VDA gain (30%). Double-tax effect is partially mitigated since the FMV becomes the cost of acquisition.

Airdrops / staking rewards

Treated similar to mining — income from other sources at FMV on date of receipt. Subsequent sale → Sec 115BBH.

NFTs sold as creator

Original sale by creator: business income or income from other sources (depending on volume / regularity). Subsequent secondary sales: Sec 115BBH.

Gifts of VDAs

Receipt of VDA worth > ₹50,000 from a non-relative is taxable as gift u/s 56(2)(x) — at slab rate (not Sec 115BBH). When subsequently sold, the cost of acquisition is the value taxed under Sec 56(2)(x).

Foreign exchanges (Binance, Coinbase, Kraken)

If you trade on a foreign exchange, two important things:

1. No automatic TDS — you must self-compute and pay advance tax. Indian exchanges deduct TDS; foreign ones don't.
2. Schedule FA disclosure — VDAs held in a foreign exchange wallet may be reportable as "foreign asset" in Schedule FA of ITR-2 / ITR-3. Non-disclosure attracts ₹10 L flat penalty per asset per year under Black Money Act.

Reporting in ITR

Use ITR-2 or ITR-3 (not ITR-1 or ITR-4):

• Schedule VDA — added in AY 2023-24. Report each transfer with cost, sale price, gain, TDS.
• Schedule TR / FSI — if you have foreign-source income or DTAA claim
• Schedule FA — if you hold VDAs on foreign exchanges (mandatory for ROR)
• Schedule TCS / TDS — claim credit for Sec 194S deductions

AIS pre-fill

From FY 2024-25, Indian exchanges report your trades to CBDT. Your AIS now pre-fills VDA transactions including sale value, buy value, and TDS. Reconcile carefully before filing — mismatches trigger Sec 143(1) intimations.

Common AIS quirks:

• Same trade reported twice (once by exchange, once by P2P counterpart)
• Internal transfers between your own wallets reported as taxable transfers
• Stablecoin conversions (USDT → USDC) reported as gain even though there's no real gain

For mismatches, file feedback on AIS before filing your ITR.

GST on crypto?

Currently, no GST on the gain from VDA transfer (it's a financial transaction). But service fees charged by exchanges attract 18% GST. The CBIC has clarified that crypto-to-crypto trades are not supplies of goods or services, so no GST is leviable on the swap itself. But this position can change — watch CBIC circulars.

Common mistakes we see

1. Netting losses against gains — illegal under Sec 115BBH. Each transfer is taxed in isolation.
2. Forgetting Schedule FA for foreign-exchange holdings — biggest exposure for retail.
3. Claiming exchange fees as cost — disallowed.
4. Filing ITR-1 / ITR-4 with VDA gains — wrong form, return defective.
5. Not claiming Sec 194S TDS credit — you've paid it, claim it back via Schedule TDS.
6. Wallet-to-wallet self-transfers reported as gains — review AIS, file feedback for self-transfers.
7. Ignoring mining / staking income — taxable as income at receipt, not just at sale.

Planning levers (limited but real)

1. Realise losses in the same FY — they don't help you in the next year, so book what you can within the year (offset can't happen anyway, but at least the loss is recognised in books).
2. Time your sale across FYs — if you're sitting on big unrealised gains, split sales across two FYs to use both years' advance-tax compliance and basic exemption (no, basic exemption doesn't apply to VDA, but slab benefits on your other income do).
3. Use Indian exchanges — TDS is automatic, AIS pre-fills cleanly, audit-trail is robust. Foreign exchanges add a Schedule FA exposure that's not worth the marginal fee saving.
4. Gift to spouse — gifts to spouse are not income, but the clubbing provisions u/s 64 mean subsequent gains are taxed in the donor's hands. So this doesn't save tax, but it's not illegal either.
5. Hold long-term — no LTCG benefit, but deferring sale defers the tax outflow. If India ever introduces an LTCG concession for VDAs (some lobbying happening), holding helps.