The Strict Rules of Crypto Taxation
The Indian government introduced a harsh tax regime for cryptocurrencies, officially termed Virtual Digital Assets (VDAs), under Section 115BBH of the Income Tax Act.
If you trade Bitcoin, Ethereum, NFTs, or any other crypto, you need to understand these rules before filing your ITR. VDA is just the official term for crypto and similar digital assets.
Quick stat: Crypto profits are taxed at a flat 30% (plus 4% cess) with a separate 1% TDS on sales, regardless of your income slab (Source: Sections 115BBH and 194S, Income Tax Act). TDS means a small tax cut at the time of the transaction that you later adjust against your final bill.
1. The Flat 30% Tax Rate
Any profit you make from selling or swapping crypto is taxed at a flat 30% (plus a 4% health and education cess, making the effective rate 31.2%).
- No Slab Benefits: It doesn't matter if your total income is below the basic exemption limit (₹3 Lakh). If you make ₹10,000 profit in crypto, you owe ₹3,120 in tax.
- No Deductions: You cannot deduct any expenses (like internet, electricity, or exchange subscription fees) from your crypto gains. The only deduction allowed is the actual cost of acquiring the crypto.
2. No Set-Off of Losses
This is the most painful rule for traders. - You cannot set off losses from one crypto against gains from another. - Example: You make ₹50,000 profit on Bitcoin and ₹40,000 loss on Ethereum. You must pay 30% tax on the full ₹50,000 Bitcoin profit. The Ethereum loss is ignored. - You cannot set off crypto losses against salary, business, or stock market gains. - You cannot carry forward crypto losses to future years.
3. The 1% TDS (Section 194S)
To track crypto transactions, the government mandates a 1% Tax Deducted at Source (TDS) on the sale of crypto if your transactions exceed ₹50,000 in a year (₹10,000 in some cases).
Indian exchanges (like CoinDCX or WazirX) automatically deduct this 1% when you sell and deposit it against your PAN. You can claim this TDS as a credit when you file your ITR.
Reporting in ITR
You must report crypto trades in a special schedule called Schedule VDA. You must provide the date of acquisition, date of transfer, cost, and sale consideration for your trades.
Reconcile with AIS Your crypto exchange reports your 1% TDS to the government, which means every sale you make appears in your **Form 26AS and AIS**. If you fail to report your crypto trades in Schedule VDA, the tax department's automated systems will immediately flag the mismatch and send you a notice. Use LastMinute ITR to ensure your reported figures align with your AIS before submitting on the portal.
Start with LastMinute ITR · import your exchange report · fix an AIS mismatch.
What you should do
- Report only the actual cost of acquisition; no other expenses are deductible.
- List each profitable trade in Schedule VDA and claim your 1% TDS credit.
- Pay the 30% tax even if your total income is below the basic exemption limit.
Common mistake
Assuming no slab benefit applies. Even a Rs 10,000 crypto profit is taxed at 30% (Rs 3,120 with cess) regardless of your slab. Treating it like normal income under-reports your liability.