Crypto and Digital Assets Taxation in India: The 30% Rule and Everything Else

India's crypto tax rules, introduced via the Finance Act 2022 and effective from April 1, 2022, are among the strictest in the world. The 30% flat tax rate and the no-loss-offset rule fundamentally change the math for crypto investors. If you hold or trade crypto in India, you need to understand these rules precisely — the consequences of non-compliance are serious.

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What Counts as a Virtual Digital Asset (VDA)

Section 2(47A) of the Income Tax Act defines VDA broadly:

• Cryptocurrencies: Bitcoin, Ethereum, Solana, and all other cryptocurrencies
• Non-fungible tokens (NFTs)
• Any other digital asset specified by the government

Excluded from VDA definition: Gift cards, reward points, mileage points, subscriptions, gaming tokens that can't be transferred — these are not VDAs.

Importantly, Sovereign Gold Bonds (SGBs) are not VDAs despite being digital — they're government securities with their own tax treatment.

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The Core Rules Under Section 115BBH

1. Flat 30% tax rate: All income from transfer of VDAs is taxed at a flat 30% (plus surcharge and 4% health and education cess). For someone in the highest slab, this is actually the same rate they'd pay. For someone earning ₹8 lakh in regular income (20% bracket), crypto gains are taxed at a higher 30% regardless.

No basic exemption, no slab benefit. Even if your total income is ₹4 lakh (below the old-regime taxable threshold), crypto gains are taxed at 30%.

2. No deduction except cost of acquisition: You can deduct only the original purchase price of the crypto. No deduction for transfer fees (exchange fees, gas fees, transaction costs), no deduction for mining costs, no deduction for any other expense.

3. No loss set-off: Losses from one VDA cannot be set off against:

• Gains from another VDA (Bitcoin loss cannot offset Ethereum gain)
• Any other income (salary, capital gains from stocks, etc.)

This is the most painful rule for active traders. If you made ₹2 lakh on Bitcoin but lost ₹1.5 lakh on an altcoin, your taxable income is ₹2 lakh — not ₹50,000.

4. No carry-forward of losses: VDA losses cannot be carried forward to future years either.

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The 1% TDS Under Section 194S

From July 1, 2022, crypto exchanges are required to deduct 1% TDS on every crypto transaction above:

• ₹50,000 per year (for specified persons — businesses and professionals)
• ₹10,000 per year (for all others)

How TDS works for crypto: When you sell crypto on an Indian exchange (CoinDCX, WazirX, Zebpay, CoinSwitch), the exchange deducts 1% TDS from the sale proceeds. This appears in your Form 26AS.

The cash flow problem: The 1% TDS applies on the gross sale value, not the profit. If you buy ₹10 lakh worth of Bitcoin and sell at ₹10.5 lakh (₹50,000 profit), the exchange deducts 1% of ₹10.5 lakh = ₹10,500 as TDS. Your actual tax on ₹50,000 gain at 30% = ₹15,000. So TDS is ₹10,500 and you pay ₹4,500 more at filing.

But if you traded frequently and have losses, you've paid 1% TDS on all gross sale proceeds — which you can only recover as a refund in your ITR (since VDA losses can't be set off against each other).

For active traders with high turnover and modest profits (or losses), TDS can far exceed actual tax liability, creating a significant cash outflow throughout the year that only resolves at refund time.

International exchanges (Binance, Kraken, etc.): The 1% TDS obligation applies to the exchange. Foreign exchanges without Indian presence technically aren't obligated to deduct TDS. However, you're still required to self-compute and pay tax on gains from foreign exchanges. Using foreign exchanges to avoid TDS doesn't eliminate your tax liability.

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What Counts as a "Transfer" (Taxable Event)

A transfer of VDA is the taxable event. This includes:

• Selling crypto for INR (or any fiat currency)
• Swapping one crypto for another (BTC → ETH is a taxable event — you've "sold" BTC)
• Using crypto to buy goods or services
• NFT sales

Not a taxable event:

• Holding crypto (unrealized gains are not taxed)
• Transferring between your own wallets (must be able to prove same-person ownership)
• Crypto staking or mining rewards: Treated as income at the fair market value when received, then separately taxed on gain when sold

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Gifting VDAs

If you receive crypto as a gift:

• Gift from a relative (as defined under the Income Tax Act): Exempt
• Gift from a non-relative: Exempt if total gifts in the year are below ₹50,000; taxable at slab rate if above ₹50,000

When you later sell the gifted crypto, the cost of acquisition is the original cost to the person who gifted it (not the FMV on the date of the gift). This connects to the general gift-to-sale chain.

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ITR Reporting Requirements

All VDA income must be reported in Schedule VDA in your ITR (ITR 2 or ITR 3 — not ITR 1). Required details:

• Date of acquisition of each VDA
• Cost of acquisition
• Date of transfer (sale/swap)
• Sale proceeds
• Gain or loss (losses reported but not set off)
• TDS deducted (from 26AS — reconcile with the exchange's TDS certificate)

You need a transaction history from every exchange and wallet you used — not just the aggregate P&L statement, but individual transaction records including dates, amounts, and exchange rates.

Record keeping: Maintain your own records of every transaction. Exchange records are sufficient for Indian exchanges, but for foreign exchanges or P2P transactions, keep screenshots and transaction IDs. Tax authorities are increasingly scrutinizing crypto disclosures.

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Practical Scenarios

Scenario 1 — Long-term holder: You bought 1 Bitcoin for ₹18 lakh in 2020. It's now worth ₹60 lakh. You sell it. Gain = ₹42 lakh. Tax = 30% of ₹42 lakh = ₹12.6 lakh + 4% cess = ₹13.1 lakh. There's no long-term capital gains rate, no indexation, no ₹1.25L exemption — just flat 30%.

Scenario 2 — Trader with mixed results: You made ₹3 lakh on ETH, lost ₹2.5 lakh on DOGE. Net gain = ₹50,000. Tax due = 30% of ₹3 lakh (gain) = ₹90,000. The loss is irrelevant. Your effective tax rate on the actual net gain is 180%.

Scenario 3 — Income from staking: You earn ₹1 lakh worth of crypto from staking. This is taxable as income from other sources at your slab rate in the year received. When you later sell the staked crypto, the cost of acquisition is the FMV when you received it. Any gain from FMV to sale price is taxed at 30% under Section 115BBH.

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The Honest Assessment

India's VDA tax framework makes active crypto trading extremely unattractive financially — the no-loss-offset rule creates asymmetric taxation (you pay full tax on gains, get no benefit from losses). For long-term holders, the 30% flat rate is punitive compared to the 12.5% LTCG on equity held over 12 months.

If you hold crypto and haven't been reporting it, the correction is to start now. ITR forms now have a mandatory Schedule VDA — leaving it blank when you have crypto transactions is a discrepancy that can trigger scrutiny, especially as the government integrates exchange data (TDS returns from exchanges) with ITR data. The risk of non-disclosure is now meaningfully higher than in earlier years.