Complete guide to cryptocurrency taxation in India for FY 2025-26: flat 30% tax under Section 115BBH, 1% TDS under Section 194S, taxability of every transaction type (trading, staking, airdrops, mining, gifts, NFTs, crypto-to-crypto swaps), loss set-off rules, and step-by-step Schedule VDA filing in ITR-2.
Crypto Tax Quick Reference
What Is a VDA? Section 2(47A) Explained
Section 115BBH — The 30% Flat Tax Rule
Section 194S — 1% TDS on Crypto
Tax on Every Crypto Transaction Type
Loss Set-Off and Carry-Forward Rules
Worked Calculation Examples
How to File — Schedule VDA in ITR-2
Crypto Tax Compliance Checklist
FAQs on Cryptocurrency Taxation
Definition of Virtual Digital Asset
The Finance Act 2022 inserted Section 2(47A) into the Income Tax Act, defining VDA (Virtual Digital Asset). Any income from transfer of a VDA is taxed under Section 115BBH.
Includes: any information, code, number, or token generated through cryptographic means (Bitcoin, Ethereum, altcoins)
Includes: Non-Fungible Tokens (NFTs) — any digital token not being Indian or foreign currency
Includes: any other digital asset as notified by the Central Government
Excludes: Indian currency (Rupee), foreign currencies, gift cards, loyalty points
What Counts as "Transfer" of VDA?
Section 2(47) defines "transfer" broadly. All of the following trigger the 30% tax:
Sale of crypto for INR (BTC → ₹)
Crypto-to-crypto swap (BTC → ETH) — even if no INR is received, this is a taxable transfer
Purchase of goods or services using crypto (paying merchant in BTC)
Transfer of NFT for consideration
NOT transfer: holding crypto, moving between your own wallets (same owner)
What Section 115BBH Says
Section 115BBH (introduced Finance Act 2022) mandates a flat 30% tax on income from transfer of any VDA. No concession for income level, holding period, or regime choice.
30% tax applies regardless of whether your total income is ₹5 lakh or ₹5 crore
Unlike equity LTCG (which has a ₹1.25 lakh exemption), VDA has zero exemption threshold
Both old regime and new regime taxpayers face identical 30% on VDA gains — regime choice does not help
Section 87A rebate (which gives zero tax on income up to ₹12 lakh under new regime) does NOT apply to VDA income
Surcharge applies: 10% if total income (including VDA gains) > ₹50L, 15% > ₹1Cr, 25% > ₹2Cr, 37% > ₹5Cr (subject to marginal relief)
What Section 115BBH(2) Prohibits
Sub-section (2) explicitly disallows deductions and set-offs that are available for other income types:
No deduction for any expenditure other than cost of acquisition — exchange fees, gas fees, wallet fees, internet costs, CA fees all disallowed
No set-off of any loss (from VDA or any other source) against VDA income
No set-off of VDA loss against any other head of income (salary, capital gains, business income)
Losses from VDA cannot be carried forward to future years under current law
The Hard Restriction — No Set-Off at All
Section 115BBH(2)(b) creates the strictest loss treatment of any asset class in Indian income tax. VDA losses are "dead" losses — they cannot benefit you.
VDA loss from one coin CANNOT be set off against VDA gain from another coin in the same year (e.g., BTC loss cannot net against ETH gain)
VDA loss CANNOT be set off against equity LTCG, equity STCG, or any other capital gain
VDA loss CANNOT be set off against salary income, business income, or any other head
VDA loss cannot be carried forward to FY 2026-27 or any future year — it is permanently lost
What This Means in Practice
If you have a mixed portfolio with both profitable and loss-making crypto positions, there is no tax benefit to the loss positions.
Example: You made ₹3 lakh profit on ETH and ₹2 lakh loss on LUNA. Tax is 30% × ₹3L = ₹90,000 — the LUNA loss provides zero benefit
Contrast with equity: STCL from stocks CAN be set off against STCG from other stocks and carried forward 8 years — crypto has no such benefit
This makes tax-loss harvesting strategies (selling losers to reduce tax) completely ineffective for crypto in India
However, if you have NO gains at all and only losses, there is no tax payable — you just lose the ability to carry forward
TDS Refund When You Have Only Losses
Even if your VDA transactions result in a net loss, TDS at 1% is still deducted on gross sale proceeds. You can claim this TDS as a refund in your ITR.
Example: Sold BTC for ₹5 lakh (original cost ₹6 lakh — loss of ₹1 lakh). Exchange deducted ₹5,000 TDS
Your VDA tax liability = ₹0 (loss, no tax). The ₹5,000 TDS is excess tax paid → becomes a refund
File ITR-2, report the loss in Schedule VDA, claim TDS credit in Schedule TDS, and claim the ₹5,000 as refund
Example 1 — Simple BTC Trade
Rohan bought 0.1 BTC in March 2025 for ₹4,50,000. He sold it in November 2025 for ₹6,20,000. Exchange deducted 1% TDS.
Sale consideration: ₹6,20,000
Cost of acquisition: ₹4,50,000
VDA gain: ₹1,70,000
Tax under Section 115BBH: 30% × ₹1,70,000 = ₹51,000
Add 4% cess: ₹51,000 × 4% = ₹2,040
Total tax payable: ₹53,040
TDS already deducted by exchange: ₹6,200 (1% of ₹6.2L)
Balance payable as self-assessment tax before filing ITR: ₹53,040 − ₹6,200 = ₹46,840
Example 2 — Crypto-to-Crypto Swap
Priya swapped 1 ETH (bought at ₹1,80,000 in Jan 2025) for 0.005 BTC in August 2025 when ETH market price was ₹2,50,000.
This is a taxable transfer of ETH
Sale consideration = market value of ETH at swap date = ₹2,50,000
Cost of acquisition = ₹1,80,000
VDA gain on ETH: ₹70,000
Tax: 30% × ₹70,000 + 4% cess = ₹21,840
Cost basis of BTC received: ₹2,50,000 (market value of ETH given up on swap date)
1% TDS on ₹2,50,000 = ₹2,500 (exchange or Priya must handle depending on platform)
Example 3 — Airdrop + Later Sale
Arjun received 500 XYZ tokens as an airdrop in May 2025. Market price on receipt date = ₹20 per token. He sold them in February 2026 for ₹35 per token.
Step 1 — Tax on receipt (May 2025): Income from Other Sources = 500 × ₹20 = ₹10,000, taxed at Arjun's slab rate
If Arjun is in 20% slab: ₹10,000 × 20% = ₹2,000 tax in FY 2025-26
Step 2 — Cost basis for future sale: ₹10,000 (= market value on airdrop date, already taxed)
Step 3 — Tax on sale (February 2026): Sale value = 500 × ₹35 = ₹17,500; Cost = ₹10,000; Gain = ₹7,500
Tax on gain under Section 115BBH: 30% × ₹7,500 + 4% cess = ₹2,340
Total tax across both events: ₹2,000 + ₹2,340 = ₹4,340 on the same 500 tokens
Example 4 — Loss Scenario (No Benefit)
Neha had ETH gain of ₹2,00,000 and LUNA loss of ₹1,50,000 in FY 2025-26.
ETH gain tax: 30% × ₹2,00,000 + cess = ₹62,400
LUNA loss: CANNOT be set off against ETH gain — tax still ₹62,400
LUNA loss: CANNOT be carried forward — lost permanently
Contrast: If this were equity, STCL of ₹1,50,000 could reduce STCG from other stocks, saving ₹37,500
Practical implication: avoid realising losses just for tax benefit in crypto — it provides zero saving
Why ITR-2 (Not ITR-1)
Any VDA transaction — even a single small crypto sale — disqualifies you from ITR-1. You must file ITR-2 (or ITR-3 if you have business income alongside crypto).
ITR-1 explicitly excludes taxpayers with VDA income
If you sold even ₹1,000 of crypto during FY 2025-26, use ITR-2
If crypto is your business (high-frequency trading classified as business): use ITR-3
ITR-4 (presumptive scheme) cannot be used for VDA income
Where to Find Schedule VDA
In ITR-2: under Part B — "Computation of Tax" → Schedule VDA (Virtual Digital Assets).
Each transaction must be entered separately — no netting or aggregation
Fields: Date of acquisition, Date of transfer, Sale consideration, Cost of acquisition, Head of income (VDA income / Income from other sources)
The portal auto-computes tax at 30% on positive VDA entries
Loss entries: enter the loss but note it shows as "0" tax and cannot reduce other schedules
Documents Needed for Schedule VDA
Gather transaction history before filing. Most exchanges provide downloadable P&L reports.
Download P&L / transaction statement from CoinDCX, WazirX, Binance, Coinbase, or your exchange — shows buy price, sell price, date
For crypto held on multiple exchanges: consolidate all transaction histories manually
For foreign exchanges (Binance, Coinbase): convert USD values to INR at SBI TT buying rate on each transaction date
For DeFi/hardware wallet transactions: use block explorer transaction data and manual INR conversion
TDS certificate (Form 16A) from exchange for Section 194S TDS deducted — cross-check with Form 26AS
Disclosing Foreign Crypto Exchanges — Schedule FA
If you hold crypto on a foreign exchange (Binance, Kraken, Coinbase, etc.), you may need to disclose it in Schedule FA (Foreign Assets).
Schedule FA mandatory if you are a Resident Indian holding VDA on foreign platforms
Report: name of exchange, country, peak value during FY, closing balance
Failure to report foreign assets: penalty ₹10 lakh per year under Black Money Act — a serious risk
Even if you only hold (no sale), the holding must be disclosed in Schedule FA
Transfer VDA to Indian exchanges to simplify compliance going forward
What is the tax rate on cryptocurrency in India for FY 2025-26?
Flat 30% tax under Section 115BBH on gains from transfer of any Virtual Digital Asset (VDA), plus 4% health and education cess — effective rate 31.2%. There is no distinction between short-term and long-term holdings, no threshold exemption, and no benefit of the 87A rebate (even if your total income is below ₹12 lakh under the new regime). Surcharge applies additionally if total income exceeds ₹50 lakh.
Is crypto-to-crypto swap taxable in India?
Yes — swapping one cryptocurrency for another is a "transfer" under Section 2(47A) and is a taxable event. If you swap BTC for ETH, the BTC transfer is taxed at 30% on the gain (sale value = market value of BTC at swap date, minus cost of acquisition). The ETH received gets a fresh cost basis equal to the market value of BTC given up on the swap date. Many investors overlook this and only report INR cash-out transactions — this is incorrect and can trigger scrutiny.
Can I set off crypto losses against stock market gains?
No. Section 115BBH(2)(b) explicitly prohibits set-off of VDA losses against any other income. A ₹2 lakh loss on Bitcoin cannot be used to reduce tax on ₹2 lakh STCG from equity stocks, ₹2 lakh LTCG, or any salary income. VDA losses are also not eligible for carry-forward to future years under current law. The only scenario where a loss helps: if you have only losses (no gains), your tax liability is ₹0 and any TDS deducted by the exchange becomes a refund.
How is TDS on crypto handled? Do I need to deduct it myself?
If you trade on a registered Indian exchange (CoinDCX, WazirX, Zebpay, etc.), the exchange deducts 1% TDS under Section 194S and deposits it on your behalf. You do not need to do anything — just verify the credit in Form 26AS and claim it in your ITR to reduce tax payable. For P2P transactions (one individual selling to another directly), the buyer must deduct and deposit 1% TDS with the government — this is frequently missed and creates compliance risk. If in doubt, P2P transfers are better handled through an exchange.
Are staking rewards and airdrops taxable?
Yes, but at a different rate than trading gains. Staking rewards and airdrops are taxed as "Income from Other Sources" at your applicable slab rate (not 30%) when received. The market value on the date of receipt becomes your cost basis. When you later sell those tokens, the gain (sale price minus this cost basis) is taxed at 30% under Section 115BBH. So the same tokens get taxed twice: once on receipt (slab rate) and again on sale (30% on appreciation).
Which ITR form should I use for crypto income?
ITR-2 for most individuals with crypto trading income alongside salary, house property, or capital gains. If you trade crypto as a business (high-frequency trading classified as business income), use ITR-3. ITR-1 cannot be used — it explicitly excludes VDA income. Even a single crypto transaction worth ₹1,000 disqualifies you from ITR-1.
I hold crypto on Binance (foreign exchange). Do I need to declare it?
Yes, mandatory disclosure in Schedule FA (Foreign Assets) of ITR-2. Report the exchange name, country, peak value during FY 2025-26, and closing balance. Even if you made no transactions, the holding itself must be declared. Non-disclosure of foreign assets can attract a penalty of ₹10 lakh per asset per year under the Black Money Act — far more than any tax owed. Additionally, transactions on foreign exchanges are still taxable in India (you are a resident Indian) and must be reported in Schedule VDA.
Can I use the new tax regime and still benefit from the 30% VDA tax?
The 30% VDA tax rate under Section 115BBH applies regardless of whether you choose the old or new regime — it is not part of the regular slab structure. Both regime taxpayers pay 30% on VDA gains. The regime choice only affects your other income (salary, house property, capital gains from non-VDA assets). One important point: the 87A rebate available under the new regime (zero tax up to ₹12 lakh income) does NOT cover VDA gains — even if your total income including VDA is below ₹12 lakh, the VDA portion is still taxed at 30%.
How do I calculate cost of acquisition if I bought crypto in multiple lots?
The Income Tax Act does not specify FIFO, LIFO, or average cost for VDA. Most practitioners use FIFO (First In, First Out) — the oldest purchase is treated as sold first. Your exchange's P&L report will use the method they apply — document which method you used and apply it consistently. If you bought BTC in three lots (₹2L, ₹3L, ₹4L) and sell 1 lot's worth, FIFO treats the ₹2L purchase as sold. Maintain a transaction log showing each buy with date and price to support your computation.
What happens if I don't report crypto income?
Significant risk. Indian exchanges report transaction data to the Income Tax Department through Statement of Financial Transactions (SFT). Your AIS (Annual Information Statement) already shows crypto transactions from registered exchanges. The IT Department cross-matches AIS with your ITR — if crypto transactions appear in AIS but not in Schedule VDA of your ITR, you will receive an automatic compliance notice. Deliberate non-disclosure of VDA income can attract 50% penalty on underreported income under Section 270A, and 200% in case of misreporting. For foreign exchange holdings, the Black Money Act penalty is ₹10 lakh per year.