India taxes gains from cryptocurrency and other Virtual Digital Assets (VDAs) at a flat 30% rate, with a 1% TDS deducted on most transactions and no relief for losses. Here is exactly how the rules work and how to report crypto income correctly in your ITR.
What counts as a "Virtual Digital Asset" (VDA)?
The Finance Act 2022 inserted a specific definition of Virtual Digital Asset into the Income-tax Act. A VDA broadly covers:
- Cryptocurrencies such as Bitcoin, Ethereum, and other tokens traded on exchanges
- Non-Fungible Tokens (NFTs)
- Any other digital asset notified by the Central Government
Once an asset falls under this definition, income from its transfer is taxed under a separate, self-contained scheme — Section 115BBH — that overrides the normal capital gains and business income provisions for that income.
The flat 30% tax under Section 115BBH
Any income arising from the transfer of a VDA is taxed at a flat 30%, plus applicable surcharge and 4% health and education cess — irrespective of:
- Your total income or which income tax slab you fall in
- Whether the gain is "short-term" or "long-term" — there is no holding-period distinction for VDAs
- Whether you are an individual investor, trader, or running a business in crypto
This means even someone with zero other taxable income still pays 30% on crypto gains — the basic exemption limit and slab benefits do not apply to VDA income.
How "income" from a VDA is computed
Income = Sale consideration − Cost of acquisition. Two important restrictions apply:
- No deduction for any expense other than the cost of acquisition — exchange fees, internet costs, advisory fees, electricity for mining, etc. are not deductible.
- No deduction under Chapter VI-A — deductions like Section 80C, 80D etc. cannot be claimed against VDA income.
Mining cost treatment: For self-mined crypto, the "cost of acquisition" is treated as Nil — the entire sale value is taxed as income when you eventually sell.
No set-off or carry-forward of crypto losses
This is the rule that catches most investors off guard:
- A loss from transferring one VDA cannot be set off against gains from another VDA (e.g., a loss on Ethereum cannot reduce a gain on Bitcoin).
- VDA losses cannot be set off against any other head of income — salary, business income, capital gains from shares, etc.
- Unutilised VDA losses cannot be carried forward to future years at all.
Each VDA-to-VDA or VDA-to-INR transaction is, in effect, taxed on a standalone basis — gains are taxed in full, while losses simply disappear for tax purposes.
1% TDS under Section 194S
Section 194S requires a 1% TDS to be deducted on payment for transfer of a VDA, where the aggregate value of transactions exceeds the specified threshold in a financial year (₹50,000 for specified persons such as individuals/HUFs not subject to audit, and ₹10,000 for others).
| Transaction type | Who deducts TDS |
|---|
| Trade on an Indian exchange | Exchange deducts 1% TDS and credits it to the seller's PAN |
| Peer-to-peer (P2P) trade | Buyer is responsible for deducting and depositing 1% TDS |
| Trade via a foreign exchange | TDS compliance becomes the buyer's/payer's responsibility; many foreign platforms do not deduct, increasing investor risk |
TDS deducted under Section 194S is reflected in Form 26AS and can be claimed as a credit against your final tax liability — it does not change the 30% rate, it is only an advance collection mechanism.
Reporting crypto income in your ITR — Schedule VDA
From AY 2023-24 onwards, ITR forms include a dedicated Schedule VDA where you must report each transfer of a virtual digital asset separately, including:
- Date of acquisition and date of transfer
- Head under which income is to be taxed (this is computed automatically at 30% under 115BBH)
- Cost of acquisition and sale consideration for each transaction
- Income from transfer of VDA
Depending on the nature and frequency of your activity, you will typically use ITR-2 (capital-gains-style holding) or ITR-3 (if treated as business income from trading). Even gifts of VDAs above ₹50,000 in value from non-relatives are taxable in the recipient's hands under "Income from Other Sources."
GST on crypto trading and other practical points
- Gains must be reported even if the crypto was converted to another crypto and never withdrawn to INR — every VDA-to-VDA swap is a taxable transfer.
- Surcharge applies based on total income slabs (up to 37% under old regime for very high incomes), pushing the effective rate above 30% plus cess for high earners.
- Receiving crypto as payment for goods/services (e.g., freelancing) is taxed as business/professional income at slab rates first, and any subsequent transfer of that crypto is separately taxed at 30% under 115BBH on the gain from that point.
- Non-disclosure of crypto income can attract penalties and scrutiny, as exchanges report transaction data to the tax department.
Frequently Asked Questions
Can I set off crypto losses against my salary or stock market gains? ▼
No. Losses from Virtual Digital Assets cannot be set off against any other income — not salary, not capital gains from shares or mutual funds, and not even gains from a different cryptocurrency. They also cannot be carried forward to future years.
Is the 30% crypto tax rate the same for everyone, regardless of income? ▼
Yes. Income from transfer of a VDA is taxed at a flat 30% (plus surcharge and 4% cess) under Section 115BBH, irrespective of your total income or the income tax slab you would otherwise fall into. The basic exemption limit does not reduce this tax.
What happens if 1% TDS under Section 194S was deducted but I made an overall loss? ▼
The TDS deducted is reflected in Form 26AS and can be claimed as a credit against your total tax liability for the year, or refunded if your total tax payable is lower than the TDS already deducted — even though the underlying loss itself cannot be set off against other income.