India Crypto Tax 2025: Section 115BBH, Schedule VDA and the 1% TDS

India runs one of the strictest crypto tax regimes in the world, introduced by the Finance Act 2022 and unchanged in its core mechanics for FY2025-26 (AY2026-27). A flat 30% rate, no deduction beyond the original purchase price, no loss set-off against other gains, and a 1% tax deducted at source on nearly every trade - this guide walks through exactly how Section 115BBH works and where it catches people out.

TL;DR

The flat 30% rate: no exceptions for holding period or size

Section 115BBH, inserted by the Finance Act 2022, taxes "income from transfer of any virtual digital asset" at a flat 30% for every taxpayer, individual or otherwise, with no slab-rate relief, no basic exemption threshold, and no distinction between a short-term flip and a multi-year hold. On top of the 30%, applicable surcharge and a 4% Health and Education Cess apply to the combined tax and surcharge. Crucially, the rate is the same whether the income is classified as Capital Gains (reported on Schedule CG, typically ITR-2) or Business Income (Schedule BP, ITR-3) - the classification affects which schedule you use and other unrelated matters like presumptive taxation eligibility, but never the 30% rate on VDA income itself.

Only cost of acquisition - nothing else

Section 115BBH(1)-(2) is explicit: computing VDA income allows a deduction for the cost of acquisition only. No deduction is permitted for any other expenditure or allowance - not exchange trading fees, not brokerage, not gas fees, not internet or hardware costs. This is a genuinely unusual design choice compared to most countries' capital-gains regimes, where transaction costs are routinely deductible. A report that shows your fees "for audit" but excludes them from the taxable computation is not a bug - it is following the statute correctly.

No loss set-off, no carry-forward

Perhaps the harshest feature of the regime: under Section 115BBH(2)(b), a loss on one VDA transfer cannot be set off against a gain on a different VDA in the same year, cannot be set off against any other head of income, and cannot be carried forward to a future year. If you sold Bitcoin at a gain and Ethereum at a loss in the same year, you still pay 30% on the Bitcoin gain in full - the Ethereum loss simply disappears for tax purposes. This makes portfolio-level netting, which is standard practice almost everywhere else, unavailable in India.

Crypto-to-crypto swaps are taxable - there is no deferral

Under Section 2(47A), a VDA is defined broadly enough that exchanging one VDA for another counts as a "transfer" of the VDA given up, taxable under 115BBH on that leg (fair market value received minus cost of acquisition of what was given up) - independent of whether any INR or other fiat currency was ever involved. Traders coming from jurisdictions with a crypto-to-crypto deferral rule need to unlearn that assumption entirely for India: every swap is a taxable event.

Derivatives: VDA transfer, or ordinary F&O income? Genuinely unresolved

A question that trips up anyone trading crypto futures or perpetuals on offshore exchanges (Binance, Bybit and similar): does a leveraged derivative contract referencing a crypto price count as a "transfer" of a VDA under Section 2(47A) - and therefore fall under 115BBH's 30% flat rate with no loss set-off - or is it ordinary F&O (futures and options) business income under Section 43(5), which is taxed at slab rates but allows normal expense deductions and loss set-off/carry-forward against other business income? No CBDT circular, notification, or tribunal ruling addresses crypto derivatives specifically. Section 2(47A) defines a VDA by reference to the asset itself (a token, coin, NFT); it does not clearly address a contract whose value merely references that asset without ever delivering it. This distinction matters most for cash- or stablecoin-settled contracts (the norm on offshore exchanges), where no VDA is ever actually transferred - arguably strengthening the case for ordinary F&O treatment over 115BBH. Practitioner commentary leans toward the F&O reading as more textually defensible, while acknowledging the point is untested and "litigious." Treating derivatives as a VDA transfer is the more conservative, revenue-safe choice - you may end up paying more tax than a court might ultimately require, but you take on essentially no downside risk from an assessment standpoint. Treating them as F&O income is more textually defensible and can allow real loss relief, but carries genuine reassessment risk given the total absence of guidance. This is not a default either a report or a general guide can safely pick for you - it needs a case-specific decision with your tax advisor, and the difference in outcome can be substantial if your derivatives trading includes both winning and losing positions in the same year, since only the VDA/no-set-off reading forces you to pay tax on the gains without any relief for the losses.

Schedule VDA: transaction by transaction, not FIFO-pooled

The notified Schedule VDA in ITR-2 and ITR-3 asks for each transfer's date of acquisition, date of transfer, cost of acquisition, consideration received, and computed income (entered as nil if the transaction was a loss, consistent with the no-set-off rule) as separate rows - not a single aggregated FIFO-pooled figure. This effectively requires specific identification of which acquisition lot was disposed of in each transfer. FIFO can be used as an internal, reproducible convention for identifying which lot corresponds to which sale (useful when specific-identification isn't otherwise documented), but it is not itself a rate or method the schedule prescribes - it is a bookkeeping convenience, not the statutory unit of calculation.

Section 194S: the 1% TDS that shows up on every statement

Section 194S requires the payer (typically the exchange) to deduct 1% TDS on the consideration for transferring a VDA, once cumulative annual consideration crosses INR 50,000 for a "specified person" (broadly, someone with business/professional income above certain thresholds or no such income at all) or INR 10,000 for anyone else. This TDS is a credit against your final tax liability, not the tax itself - and it should never be estimated. Only claim the TDS amount that actually appears in your Form 26AS or AIS (Annual Information Statement) and is supported by the exchange's own deduction statements; a report's own estimate of what TDS "should" have been withheld is not a substitute for the officially reported figure.

Mining, staking and airdrops: taxed twice, in two different ways

Receiving new VDA through mining, staking rewards, or an airdrop is a separate taxable event from any later sale: the fair market value at the time of receipt is taxed as ordinary income (typically Schedule OS - "income from other sources" - or business income if the activity rises to that level), under normal slab rates rather than the 30% VDA rate. Separately, when that same coin is later sold, 115BBH applies to the disposal - and for self-mined coins specifically, the cost of acquisition for that later sale is nil, since infrastructure and mining costs are treated as capital expenditure, not an allowable cost of acquisition under 115BBH (per the Finance Bill 2022 memorandum). Coins received via staking or airdrop and already taxed as income at receipt should instead carry that already-taxed fair market value as their cost basis going forward.

Filing deadline

For FY2025-26 (AY2026-27), the standard due date for individuals filing ITR-2 in non-audit cases is 31 July 2026. Some secondary sources describe a later, separate 31 August 2026 deadline for non-audit ITR-3/ITR-4 filers under Finance Act 2026 - this could not be confirmed against a primary CBDT notification at the time of writing, so verify your specific due date rather than relying on either figure blindly.

Looking ahead: the new Income-tax Act

The Income-tax Act, 2025 came into force on 1 April 2026, replacing the 1961 Act - but only for income earned from FY2026-27 onward. Income earned in FY2025-26, the year this guide covers, remains governed entirely by the 1961 Act, so Section 115BBH and Section 194S as described here are unaffected. The new Act is expected to renumber sections; taxpayers filing for FY2026-27 and later should confirm the corresponding section numbers under the new Act.

Conclusion

India's VDA regime is unusually unforgiving by international standards: a flat 30% with no fee deduction, no loss netting, and full taxability of crypto-to-crypto swaps, combined with a 1% withholding tax that shows up as a paper trail on nearly every transaction. The one piece of relief - separate treatment of mining/staking/airdrop income from later disposal gains - doesn't offset the overall severity. Keep a complete, transaction-by-transaction record (not just a net P&L figure), and reconcile your actual TDS credits against Form 26AS/AIS before filing.

This article is not tax or legal advice. The Capital Gains vs Business Income classification, the treatment of defi-steuern-2026">DeFi/NFT transactions, and the precise TDS reconciliation should be confirmed with a qualified Indian tax professional before filing.

Hinweis: Dieser Artikel dient ausschließlich zur allgemeinen Information und stellt keine Steuerberatung dar. Für individuelle Steuerberatung wende dich an einen zugelassenen Steuerberater.