India Crypto Tax Guide 2026 — Virtual Digital Assets (30% + 1% TDS)

Overview — Virtual Digital Assets (VDAs) Under Indian Tax Law

The Income Tax Act defines Virtual Digital Assets broadly to capture all forms of crypto assets. Key provisions:

👉 Definition (Section 2(47A)): Any information, code, number, or token (not being Indian currency or foreign currency) generated through cryptographic means, providing a digital representation of value exchanged with or without consideration. Includes cryptocurrencies (Bitcoin, Ethereum), NFTs (non-fungible tokens), and any other digital assets notified by the government. Stablecoins pegged to fiat currency are also covered (e.g., USDT, USDC).

👉 Exclusions: Gift cards, reward points, loyalty programs, and similar non-crypto digital representations are not VDAs. Indian currency and foreign currency are excluded. The government can notify specific exclusions.

👉 Tax Rate — Section 115BBH: 30% (plus applicable surcharge and 4% cess) on any income from the transfer of VDAs. No deduction for any expense other than the cost of acquisition. No deduction for interest, brokerage, transaction fees, platform fees, or any other cost. The effective tax rate including surcharge and cess can reach up to 39% (for income above INR 5 crore).

Taxable Events — What Triggers the 30% Tax

The 30% tax under Section 115BBH applies on "income from the transfer of VDAs." A transfer includes:

👉 Selling VDA for INR: Selling Bitcoin, Ethereum, or any other VDA on an Indian or foreign exchange. The gain is the difference between sale proceeds (in INR) and cost of acquisition.

👉 Exchanging One VDA for Another: Swapping BTC for ETH is a "transfer" of BTC. You are deemed to have sold BTC at its INR fair market value and acquired ETH. The gain/loss on BTC is taxable. The value of the transaction is the INR market value of the asset received.

👉 Spending VDA: Using crypto to pay for goods or services. The transaction is treated as a transfer of the VDA at its INR market value. The gain (market value minus cost) is taxable at 30%.

👉 Gifting VDA: Gifting crypto to another person is a transfer. The giver is deemed to have transferred the VDA at fair market value, triggering capital gain/loss. The recipient's cost of acquisition is the FMV on the date of gift (unless received from specified relatives — for gifts from relatives, the recipient takes over the giver's cost basis). Note that gifts from non-relatives above INR 50,000 are taxable as "Income from Other Sources" in the recipient's hands.

👉 Mining/Staking Rewards: VDAs received as mining or staking rewards are taxed at 30% on the fair market value at the time of receipt (no cost of acquisition). The subsequent transfer of these VDAs triggers a further 30% tax on the gain (sale price minus FMV at receipt).

👉 Airdrops: Free tokens received through airdrops are taxable at 30% on the fair market value at the time of receipt. Since there is no cost of acquisition, the entire FMV is treated as income.

👉 Converting to Gift Cards or Other Assets: Any conversion of VDA to non-VDA form (including gift cards, precious metals, or other assets) is a transfer and triggers the 30% tax.

Non-Taxable Events

Certain transactions are not considered "transfers" and do not trigger the 30% tax:

👉 Transfer Between Own Wallets: Moving crypto from one wallet you control to another (e.g., from exchange to hardware wallet) is not a transfer. No tax is due (no change in beneficial ownership).

👉 Holding Without Disposal: Simply holding crypto without selling, spending, or exchanging does not trigger any tax. Only a "transfer" (disposal) event creates tax liability.

👉 Bona Fide Gift to Specified Relatives: Gifts to specified relatives (spouse, siblings, lineal ascendants/descendants, and certain others under Section 56) are not taxable as income in the recipient's hands. However, the giver may still be subject to capital gains tax on the transfer (since gifting is a transfer).

👉 Transfer on Death: Transfer of VDA by inheritance is not a taxable event for the inheritor. The cost of acquisition for the inheritor is the cost at which the deceased acquired the VDA (step-up in basis is not available in India for any asset).

1% TDS Under Section 194S

The 1% TDS (Tax Deducted at Source) on VDA transfers is one of the most impactful provisions:

👉 Applicability: Any person responsible for paying consideration for the transfer of a VDA must deduct TDS at 1% of the consideration. This applies to all transfers — sales on exchanges, peer-to-peer transfers, exchanges of one VDA for another, and in-kind payments.

👉 Threshold: TDS applies if the consideration exceeds INR 50,000 in a financial year (for specified persons — individuals/HUF who do not have business income from VDA transactions). For others (businesses, professionals, and individuals/HUF with VDA business income), the threshold is INR 10,000 per transaction.

👉 Who Deducts TDS: On an exchange (e.g., CoinDCX, WazirX, Binance): the exchange deducts TDS on the buyer's behalf and deposits it with the government. In a peer-to-peer transaction: the buyer deducts TDS on payment to the seller. For cross-border transactions: if the buyer is in India, they must deduct TDS even if the seller is abroad.

👉 TDS Credit: The TDS deducted is credited to the seller's PAN (Part B of Form 26AS). The seller can claim this TDS as a credit against their total tax liability when filing their income tax return. TDS deducted appears in Form 26AS and AIS.

👉 Impact on Liquidity: The 1% TDS has reduced trading volumes significantly (by 40-70% on Indian exchanges) since it locks up 1% of capital on every trade. For high-frequency traders who make many small trades, the TDS can accumulate and create cash flow issues (although the amount is refundable when filing the annual return).

👉 Compliance Burden: The deductor must file TDS return (Form 26QE) quarterly. TDS must be deposited within 7 days of the end of the month in which deduction was made. Non-compliance attracts interest (1% per month for late deduction, 1.5% per month for late payment) and penalties.

Loss Offset — The Most Punitive Rule

The restriction on loss offset makes Indian crypto tax uniquely harsh:

👉 No Offset Against Any Income: Losses from the transfer of VDAs cannot be offset against any other income (including other VDA gains in the same category, capital gains from non-VDA assets, business income, or any other head of income). This means a year with net losses on VDA transactions results in zero benefit — you simply do not pay tax, but you cannot reduce your tax on other income.

👉 No Carry Forward: VDA losses cannot be carried forward to future years. This is a major departure from normal tax rules (where capital losses can be carried forward for 8 years). If you have a loss in FY 2025-26, it expires unused at year-end.

👉 Example: You gain INR 5,00,000 on Bitcoin trades and lose INR 3,00,000 on Ethereum trades in the same year. You cannot net the loss against the gain. You pay 30% tax on INR 5,00,000 (INR 1,50,000) and the INR 3,00,000 loss is completely wasted.

👉 Impact on Traders: This rule heavily disadvantages active traders who will inevitably have both winning and losing trades. It effectively taxes gross gains rather than net profits. Long-term investors who rarely trade may fare better because they have fewer losing positions to worry about.

Cost of Acquisition — Only Deduction Allowed

The only deduction permitted against VDA gains is the "cost of acquisition":

👉 What Is Included: The actual purchase price paid to acquire the VDA (in INR or fair market value of consideration paid). If acquired through mining/staking/airdrop: cost of acquisition is zero (the FMV at receipt is treated as income, not cost).

👉 What Is NOT Included: Brokerage fees, exchange transaction fees, platform membership fees, network transaction fees (gas fees), wallet subscription charges, interest on loans used to buy crypto, advisory fees, software subscription fees for tracking tools, internet/electricity costs for mining. None of these are deductible.

👉 Cost Basis Method: The Income Tax Act does not specify a particular cost basis method (FIFO, LIFO, or average). In practice, most taxpayers use FIFO (First In, First Out) by default. The CBDT has not issued specific guidance on this, creating some ambiguity. Tax professionals generally recommend FIFO as the most supportable method.

👉 Example: You buy 1 BTC for INR 20,00,000 (including INR 5,000 exchange fees). Cost of acquisition = INR 20,00,000 (the fee is NOT deductible). You sell 1 BTC for INR 30,00,000 (INR 5,000 selling fee). Gain = INR 30,00,000 - INR 20,00,000 = INR 10,00,000. Tax = 30% of INR 10,00,000 = INR 3,00,000 (plus surcharge/cess). The selling fee is NOT deductible.

NFTs and Other Digital Assets

Non-Fungible Tokens (NFTs) and other digital assets are also covered:

👉 NFTs as VDAs: NFTs are explicitly included in the definition of VDAs. The 30% tax applies to any income from the transfer of NFTs. Cost of acquisition of the NFT is deductible (the purchase price or minting cost). No other expenses (gas fees, marketplace fees, creator royalties) are deductible.

👉 NFT Art vs Digital Asset: If an NFT represents ownership of an underlying physical or traditional asset (e.g., a painting or real estate), the CBDT may argue that the NFT itself is a VDA but the underlying asset is not. The tax treatment depends on the NFT's classification. Most NFTs (profile pictures, generative art, in-game items) are pure VDAs and subject to 30% tax.

👉 Gaming Tokens: Cryptocurrency tokens earned through play-to-earn (P2E) games are VDAs. The FMV at the time of receipt is taxable at 30% under Section 115BBH. Subsequent transfer of the tokens triggers further 30% tax. In-game items that are not transferable or tradeable are not VDAs (they are not "transferred").

👉 DeFi Income: Income from DeFi protocols (lending interest, liquidity provider fees, yield farming rewards) is also treated as income from VDAs under Section 115BBH. The entire FMV at the time of receipt is taxable at 30% with no deduction for gas fees, protocol fees, or any costs incurred in earning the DeFi income.

Reporting & Compliance

Proper reporting of VDA transactions in your tax return is essential to avoid penalties:

👉 ITR Schedule: Income from VDAs is reported in the ITR under "Income from Other Sources" (or "Capital Gains" for investments — there is some ambiguity). The specific schedule for VDAs is incorporated into the ITR forms. You report: total consideration from VDA transfers, total cost of acquisition (only), and net income at 30%.

👉 Form 26AS & AIS: TDS deducted on VDA transactions (1% under Section 194S) appears in your Form 26AS and Annual Information Statement (AIS). The tax department cross-references your reported VDA income with TDS data from exchanges. Mismatch notices are increasingly common.

👉 Trading Volume Disclosure: The ITR may ask for total trading volume (total value of VDA transfers during the year) in addition to net income. This helps the tax department identify high-volume traders for scrutiny.

👉 Penalties for Non-Reporting: Failure to report VDA income: penalty up to 50% of the tax that would have been payable (if deliberate concealment). Failure to file return: late filing fee under Section 234F (up to INR 10,000). Interest under Section 234A/B/C for late payment of tax. Scrutiny assessment likely for large or unreported VDA transactions.

FAQs

What is the tax rate on cryptocurrency in India?

Income from the transfer of Virtual Digital Assets is taxed at a flat 30% under Section 115BBH of the Income Tax Act. Plus applicable surcharge (10-37% for income above INR 50 lakh) and 4% health and education cess. The maximum effective rate is approximately 39%.

What is 1% TDS under Section 194S?

Any buyer of VDAs (or person paying consideration for a transfer) must deduct 1% TDS on the consideration amount. For transactions through exchanges, the exchange deducts TDS. For P2P transactions, the buyer deducts it. The TDS is credited to the seller's PAN and can be claimed as a tax credit.

Can I offset crypto losses against other income?

No. Losses from VDA transfers cannot be offset against any other income (including other capital gains, business income, or salary). VDA losses also cannot be carried forward to future years. This is one of the most punitive aspects of the Indian crypto tax regime.

What deductions are allowed against crypto gains?

Only the "cost of acquisition" of the VDA is deductible. No other expenses are allowed — not brokerage, exchange fees, gas fees, platform fees, advisory fees, or any other costs. The cost of acquisition is the purchase price (in INR) paid to acquire the VDA.

Is gifting crypto taxable in India?

Yes. Gifting crypto is a "transfer" — the giver is taxed at 30% on the FMV of the crypto minus their cost of acquisition. The recipient may also be taxed: if the gift exceeds INR 50,000 from a non-relative, it is taxable as "Income from Other Sources" in the recipient's hands at normal slab rates.

How do I report crypto transactions in my ITR?

Report VDA income under the specific schedule for Virtual Digital Assets in your ITR. You report total consideration, total cost of acquisition, and net income taxable at 30%. The TDS deducted (1% under Section 194S) appears in Form 26AS and can be claimed as credit.

What is the cost basis method for crypto in India?

The Income Tax Act does not prescribe a specific method (FIFO, LIFO, average). Most taxpayers and tax professionals use FIFO (First In, First Out) by convention. The CBDT has not issued specific guidance, so maintaining consistent records is essential.

Are NFTs taxed in India?

Yes. NFTs are included in the definition of Virtual Digital Assets. Income from the transfer of NFTs is taxed at 30% under Section 115BBH. Cost of acquisition (purchase price or minting cost) is deductible. No other expenses (gas fees, marketplace fees) are deductible.