✅ A Complete Guide to Cryptocurrency Taxation (2025 Updated)
With the surge in digital asset investments, cryptocurrency taxation has become a crucial topic for Indian investors. Whether you’re trading Bitcoin, holding Ethereum, or flipping NFTs, understanding the tax on cryptocurrency is essential to stay compliant with Indian tax laws.
This guide explains taxes on crypto gains, how virtual digital assets are defined, when taxes were introduced, applicable tax rates, treatment of losses, TDS implications, and FAQs.
💡 What are Virtual Digital Assets (VDAs)?
As per Section 2(47A) of the Income Tax Act, the term Virtual Digital Asset (VDA) includes:
“Any information or code or number or token (not being Indian currency or foreign currency) generated through cryptographic means or otherwise, providing a digital representation of value.”
VDAs include:
- Cryptocurrencies (e.g., Bitcoin, Ethereum, Dogecoin)
- NFTs (Non-Fungible Tokens)
- Tokens used in metaverse, games, or DeFi protocols
- Other digital assets notified by the government
Not considered as VDA:
- CBDC (Central Bank Digital Currency) like e₹ (digital rupee) issued by RBI
- FIAT currencies, whether Indian or foreign
- Any asset specifically excluded by the Central Government
📆 When Was Tax on Cryptocurrency Introduced?
The Indian government officially taxed crypto from 1st April 2022, through the introduction of Section 115BBH in the Finance Act, 2022. Later, from 1st July 2022, Section 194S introduced a TDS on crypto transactions to improve traceability.
💰 Tax on Cryptocurrency Income (Section 115BBH)
- Taxed at flat 30% on profits from transfer of VDAs
- No deductions allowed except cost of acquisition
- No set-off against any other income (e.g., salary, rent, etc.)
- No carry forward of losses from VDA transactions
❌ Can Losses Be Carried Forward?
No, losses from sale or transfer of cryptocurrencies or NFTs cannot be carried forward to subsequent years.
Additionally:
- Losses from one VDA cannot be adjusted against gains from another VDA.
- No inter-head or intra-head adjustments allowed under Section 115BBH.
For example:
- If you made a loss of ₹10,000 in Dogecoin and a gain of ₹20,000 in Ethereum, you must pay 30% tax on the full ₹20,000 gain (i.e., ₹6,000 tax), without offsetting the Dogecoin loss.
🧾 Detailed Guide to TDS on Crypto Transfers (Section 194S)
Effective from 1st July 2022, Section 194S mandates TDS at 1% on payment for transfer of a virtual digital asset (VDA).
💼 Who Needs to Deduct TDS?
- Buyer of crypto/NFT must deduct 1% TDS when paying the seller.
- If the transaction happens on an exchange, TDS may be deducted by the exchange or the buyer, depending on who is responsible.
💳 Threshold Limits for TDS:
| Category | Threshold for TDS |
|---|---|
| Specified person (individual/HUF without audit) | ₹50,000 per financial year |
| Others (e.g., businesses, traders) | ₹10,000 per financial year |
If total payments made for crypto exceed these limits, TDS at 1% becomes applicable.
📉 TDS on Crypto-to-Crypto Transactions
Even if crypto is exchanged for another crypto (e.g., Bitcoin for Ethereum), the fair market value (FMV) is considered for TDS.
- Example: If you exchange Bitcoin worth ₹1 lakh for Ethereum, 1% TDS = ₹1,000.
- Since no cash is involved, either party must deduct and pay TDS in cash.
🧾 Reporting and Filing
- TDS to be deposited within 30 days from the end of the month in which deduction is made
- Form 26Q or 26QE to be filed
- Issue Form 16A to the deductee as proof of tax deduction
📊 Summary of Cryptocurrency Taxation in India
| Criteria | Applicability |
|---|---|
| Law Governing Tax | Section 115BBH, Section 194S |
| Tax Rate on Gains | 30% + cess/surcharge |
| TDS on Transfer | 1% on total transaction value |
| Set-off of Losses | ❌ Not allowed |
| Carry Forward of Losses | ❌ Not allowed |
| Return Filing Requirement | ITR-2 or ITR-3 (if business income) |
| GST (for service providers) | 18% on services provided |
📝 Example Scenario:
You bought Ethereum for ₹1,50,000 and sold it for ₹2,00,000.
- Capital Gain: ₹50,000
- Income Tax: ₹15,000 (30%)
- TDS (if buyer deducted): ₹2,000 (1% of ₹2,00,000)
Net cash received: ₹1,98,000
Tax payable by seller: ₹13,000 (after adjusting TDS)
❓ Frequently Asked Questions (FAQs)
1. What is considered a Virtual Digital Asset (VDA)?
VDAs include cryptocurrencies, NFTs, and other blockchain-based assets that are digitally tradable but not issued by the government.
2. Who deducts TDS on crypto transfers?
The buyer is responsible for deducting and depositing TDS. On exchanges, the exchange or broker may handle it.
3. Is 1% TDS applicable on losses too?
Yes. TDS is calculated on the transaction value, not on gains/losses.
4. What happens if I forget to deduct TDS?
Failure to deduct or deposit TDS can attract interest, penalties, and disallowance of expenses under Section 40(a)(ia).
5. Can I adjust crypto loss with stock market profit?
No. Crypto losses cannot be adjusted with stock or other capital gains.
6. Is staking income taxable?
Yes, staking rewards are taxed as income from other sources when received, and gains on their sale are again taxed under Section 115BBH.
✅ Final Thoughts
India’s crypto tax regime is now one of the most clearly defined in the world, with high tax rates, strict TDS rules, and no loss adjustments. Understanding the implications of taxes on crypto gains and tax on cryptocurrency is crucial for accurate return filing and avoiding legal hassles.