Crypto Tax under Income-tax Act, 2025 – Tax Rate, TDS, Losses and VDA Rules Explained

Cryptocurrency transactions in India are subject to a special taxation framework for Virtual Digital Assets (VDAs). The Income-tax Act, 2025 retains the key features of the earlier VDA tax regime, including a 30% tax rate on income from transfer of VDAs, 1% TDS on specified transfers, restrictions on deductions, and restrictions on setting off or carrying forward VDA losses.

From 1 April 2026, the relevant provisions have been reorganised and renumbered under the Income-tax Act, 2025. The new framework also contains specific reporting requirements for crypto-asset transactions.

What is a Virtual Digital Asset under the Income-tax Act, 2025?

Section 2(111) of the Income-tax Act, 2025 defines a Virtual Digital Asset (VDA) broadly.

It includes:

• Information, code, number or token generated through cryptographic means or otherwise that represents value and can be transferred, stored or traded electronically.
• Non-Fungible Tokens (NFTs).
• Other digital assets notified by the Central Government.
• A crypto-asset representing value and relying on a cryptographically secured distributed ledger or similar technology.

Indian currency and foreign currency are outside the general VDA definition. Certain other digital assets may also be excluded through notification.

Income-tax Act, 1961 vs Income-tax Act, 2025

The Income-tax Act, 2025 applies from 1 April 2026. Transactions and tax periods governed by the earlier law continue to be dealt with under the Income-tax Act, 1961 in accordance with the applicable repeal and saving provisions.

What is the tax rate on cryptocurrency under the Income-tax Act, 2025?

Under section 194(1), Table Sl. No. 4 of the Income-tax Act, 2025, income arising from the transfer of a Virtual Digital Asset is taxable at:

30%

Applicable surcharge and 4% Health and Education Cess are additional, wherever applicable.

The special 30% rate applies to income arising from transfer of VDAs and is separate from the taxpayer's normal slab rates applicable to other income.

Example

Suppose cryptocurrency was purchased for ₹2,00,000 and later sold for ₹3,00,000.

The above calculation is before considering any applicable surcharge.

What expenses can be deducted from crypto income?

The VDA tax rules are more restrictive than the ordinary rules applicable to capital gains or business income.

While computing income from transfer of a VDA, deduction is generally restricted to the cost of acquisition.

Other expenses are generally not deductible merely because they relate to crypto transactions. These may include:

• Internet expenses
• Advisory charges
• Portfolio management expenses
• Computer or equipment expenses
• Interest expenses
• Electricity expenses
• Other incidental trading expenses

Can crypto losses be adjusted against crypto profits?

The Income-tax Act imposes strict restrictions on losses arising from the transfer of VDAs.

A loss from transfer of a VDA cannot be set off against income computed under another provision, and such loss cannot be carried forward to a subsequent tax year.

Example: Profit in one crypto and loss in another

The taxpayer should not simply calculate taxable VDA income as ₹1,00,000 − ₹40,000 = ₹60,000.

Under the special VDA framework and Schedule VDA reporting methodology, loss-making VDA transactions do not reduce positive VDA income in the same manner as ordinary capital losses.

Transaction-wise records are therefore important.

Can crypto losses be carried forward?

No. A loss arising from transfer of a Virtual Digital Asset cannot be carried forward to future tax years under the special VDA provision.

For example, if a taxpayer incurs a crypto loss of ₹2 lakh during Tax Year 2026-27, that loss cannot ordinarily be carried forward and used to reduce VDA profits of Tax Year 2027-28.

Is 1% TDS applicable on cryptocurrency transactions?

Yes. Under the Income-tax Act, 2025, the VDA TDS mechanism is contained in section 393.

Section 393(1), Table Sl. No. 8(vi) provides for deduction of tax at:

1% of the consideration paid for transfer of a Virtual Digital Asset.

TDS is calculated on the transaction consideration, not on the seller's profit.

Example

Suppose cryptocurrency is sold for ₹2,00,000 and the seller's actual profit is only ₹20,000.

Subject to the applicable threshold and other conditions:

₹2,00,000 × 1% = ₹2,000 TDS

The TDS is not calculated as ₹20,000 × 1%.

TDS is only a withholding mechanism. It should not be confused with the final tax payable on taxable VDA income.

What are the TDS threshold limits for cryptocurrency?

Section 393 provides specified monetary thresholds below which VDA TDS may not apply.

Who gets the ₹50,000 threshold?

The higher threshold broadly applies to an individual or HUF who:

• does not have income from business or profession or
• had business turnover not exceeding ₹1 crore or professional gross receipts not exceeding ₹50 lakh in the immediately preceding tax year

For other payers, the threshold is generally ₹10,000.

Is TDS applicable if one cryptocurrency is exchanged for another?

Yes, a crypto-to-crypto transaction may also constitute transfer of a VDA.

The law specifically deals with consideration that is:

• wholly in kind
• partly in cash and partly in kind or
• in exchange for another Virtual Digital Asset

Where there is insufficient cash from which tax can be deducted, the person responsible for the transaction must ensure that the required tax has been paid before releasing the consideration.

Who deducts TDS when crypto is sold through an exchange?

The practical responsibility depends on how the transaction is structured.

CBDT guidelines contain specific mechanisms for transactions carried out through crypto exchanges, including situations where buyers and sellers do not directly interact.

Special arrangements may also apply where:

• a broker is involved
• the exchange deducts tax on behalf of the parties or
• the exchange itself owns the VDA being transferred.

Taxpayers should check their exchange statements for:

• Sale consideration
• TDS deducted
• Transaction date
• Acquisition cost
• Type of VDA
• TDS appearing in the relevant tax records

New Form 141 for certain VDA TDS payments

Under the Income-tax Rules, 2026, specified VDA TDS compliance has been consolidated into Form No. 141.

For applicable VDA transactions, the relevant information is furnished in Schedule D of Form 141.

The challan-cum-statement is generally required to be furnished electronically within 30 days from the end of the month in which the deduction is made.

For specified reporting by crypto exchanges, Form No. 142 replaces the earlier Form 26QF framework.

What happens when cryptocurrency is received as a gift?

Virtual Digital Assets are also included within the meaning of property for specified gift-tax provisions.

Under section 92(2)(m) of the Income-tax Act, 2025, receipt of property without consideration or for inadequate consideration may become taxable under Income from Other Sources, subject to the applicable conditions and monetary threshold.

However, statutory exceptions are available for specified receipts, including property received:

• from a relative
• on the occasion of an individual's marriage
• under a will
• by inheritance or
• in contemplation of death

Therefore, receiving cryptocurrency without paying for it does not automatically mean that the receipt is tax-free.

Does merely holding cryptocurrency attract the 30% tax?

The special 30% tax applies to income arising from transfer of a Virtual Digital Asset.

Merely holding cryptocurrency without transferring it does not by itself create income from transfer under this provision.

Tax consequences may arise when there is a qualifying:

• Sale
• Exchange
• Transfer
• Disposal

Other types of crypto receipts, such as mining rewards, staking rewards or airdrops, may require separate analysis depending on the facts and nature of the receipt.

Crypto-asset reporting requirements under Section 509

Section 509 of the Income-tax Act, 2025 requires prescribed reporting entities dealing with crypto-assets to furnish prescribed information regarding crypto-asset transactions.

The Income-tax Rules, 2026 contain detailed provisions regarding:

• Reporting crypto-asset service providers
• Identification of reportable users
• Reportable transactions
• Due diligence
• Maintenance of information
• Filing of the prescribed statement

The prescribed statement is Form No. 167.

The statement is generally required from the reporting crypto-asset service provider by 31 May of the calendar year following the year to which the information relates.

This reporting obligation primarily applies to prescribed reporting crypto-asset service providers and should not be confused with an individual taxpayer's obligation to correctly disclose VDA income in the income-tax return.

Penalty for failure to report crypto-asset transactions

The Income-tax Act, 2025 contains a specific penalty framework under section 446 for reporting entities covered by section 509.

The relevant penalty provisions can include:

• ₹200 per day for specified failure to furnish the required statement; and
• ₹50,000 in specified cases involving inaccurate information or failure to comply with applicable due-diligence requirements.

These reporting penalties apply to persons having obligations under section 509 and do not automatically apply to every individual crypto investor.

How should crypto income be reported in the income-tax return?

For returns governed by the Income-tax Act, 1961, the Income Tax Department provides Schedule VDA for reporting income from transfer of Virtual Digital Assets.

Schedule VDA requires transaction-level information such as:

• Date of acquisition
• Date of transfer
• Consideration received
• Cost of acquisition
• Income arising from the transfer

Schedule VDA is relevant for ITR-2, ITR-3, ITR-5, ITR-6 and ITR-7 depending on the taxpayer category and nature of income.

Taxpayers should retain supporting records such as:

• Crypto exchange transaction statements
• Wallet transaction history
• Purchase records
• Bank statements
• TDS records
• Transaction IDs
• Records of crypto-to-crypto swaps
• Documents supporting the cost of acquisition

Important distinction for AY 2026-27

FY 2025-26 / AY 2026-27

Transactions occurring up to 31 March 2026 continue to be governed by the Income-tax Act, 1961.

The main provisions are:

• Section 2(47A) – Definition of VDA
• Section 115BBH – 30% tax and loss restrictions
• Section 194S – 1% TDS

From 1 April 2026

For Tax Year 2026-27 onwards, the Income-tax Act, 2025 applies.

The principal provisions include:

• Section 2(111) – Definition of VDA
• Section 194(1), Table Sl. No. 4 – VDA taxation
• Section 393(1), Table Sl. No. 8(vi) – VDA TDS
• Section 393(4), Table Sl. No. 12 – VDA TDS threshold
• Section 509 – Crypto-asset reporting

Common mistakes while reporting crypto income

1. Paying tax only on net portfolio profit

VDA losses cannot simply be adjusted against other income or carried forward. Transaction-wise computation is important.

2. Treating 1% TDS as the final crypto tax

TDS is tax withheld on consideration. The final taxable VDA income is separately subject to the special tax provisions.

3. Deducting trading expenses

The special provision generally permits only the cost of acquisition while computing income from transfer of a VDA.

4. Ignoring crypto-to-crypto transactions

Exchanging one VDA for another can also constitute a transfer and may have tax and TDS implications.

5. Ignoring transactions because the exchange deducted TDS

TDS deduction does not replace the taxpayer's obligation to compute and disclose taxable VDA income correctly.

6. Using Income-tax Act, 2025 section numbers for AY 2026-27

FY 2025-26 / AY 2026-27 continues to be governed by the Income-tax Act, 1961. The Income-tax Act, 2025 applies from 1 April 2026.

Key takeaways

• Cryptocurrency and qualifying crypto-assets are treated as Virtual Digital Assets.
• Income from transfer of a VDA is subject to a special 30% tax rate.
• Applicable surcharge and 4% Health and Education Cess are additional.
• Deduction under the special VDA computation is generally restricted to the cost of acquisition.
• VDA losses cannot be set off against other income.
• VDA losses cannot be carried forward.
• TDS on transfer of a VDA is generally 1% of the consideration.
• The general TDS thresholds are ₹50,000 for qualifying individuals/HUFs and ₹10,000 for other payers.
• Crypto-to-crypto transactions may also create tax and TDS consequences.
• VDAs received as gifts may be taxable subject to statutory exemptions.
• Form 141 is relevant for specified VDA TDS compliance under the Income-tax Rules, 2026.
• Prescribed crypto-asset service providers have reporting obligations under section 509 and Form 167.
• FY 2025-26 / AY 2026-27 remains governed by the Income-tax Act, 1961.

Conclusion

The Income-tax Act, 2025 continues India's special taxation framework for cryptocurrency and other Virtual Digital Assets. The core rules remain strict: a special 30% tax on income from VDA transfers, limited deductions, restrictions on losses and 1% TDS on qualifying transactions.

The major change under the new law is the reorganisation of the provisions and expansion of the crypto-asset reporting framework. Former sections 115BBH and 194S of the Income-tax Act, 1961 have corresponding provisions under sections 194 and 393 of the Income-tax Act, 2025, while section 509 introduces a dedicated reporting framework for prescribed crypto-asset service providers.

Taxpayers dealing in cryptocurrency should maintain transaction-level records and reconcile exchange statements, TDS information and income-tax return disclosures carefully.

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