ITR filing: Crypto taxation and reporting rules
Provisions that govern 30% flat tax on transfer The TDS net Special situations Overseas holdings India’s cryptocurrency or virtual digital assets (VDAs) taxation rules have
Provisions that govern 30% flat tax on transfer The TDS net Special situations Overseas holdings India’s cryptocurrency or virtual digital assets (VDAs) taxation rules have been around for four years, but they remain among the toughest in the world. Investors pay a flat 30% tax on gains and 1% tax deducted at source (TDS) on all transactions. Even so, many questions remain unanswered: from the tax treatment of airdrops and worthless tokens to reporting crypto held in overseas wallets.The framework arrived with the Finance Act, 2022. “The key governing provisions are Section 2 (47A) of the Income Tax Act, 1961 (corresponding Section 2 (111) of the Income Tax Act, 2025) which defines VDAs; Section 115BBH (corresponding Section 194 of the new law) which taxes income from transfer of VDAs at 30%; and Section 194S (corresponding Section 393 of the 2025 Act) which mandates 1% TDS on specified transfers,” says Raghav Bajaj, Partner, Khaitan & Co.Two more provisions complete the picture: Section 56 (2)(x) taxes gifted crypto, while Section 285BAA requires exchanges to report crypto transactions to the tax department.The VDA definition is deliberately wide: cryptocurrencies, non-fungible tokens (NFTs) and anything the government may notify. Excluded are Indian and foreign currency, Central Bank Digital Currency, and—via Central Board of Direct Taxes (CBDT) notifications of 30 June 2022—gift cards, vouchers, mileage and loyalty points, and NFTs whose transfer conveys ownership of an underlying tangible asset.Income from transferring a VDA is taxed at a flat 30%, plus surcharge and cess, no matter how long you held it.
“The conventional concepts of shortterm capital gains and long-term capital gains do not apply to crypto assets, and taxpayers cannot benefit from concessional long-term capital gains rates or indexation,” says Sanjiv Malhotra, Senior Advisor and Head of Tax Practice, Shardul Amarchand Mangaldas & Co.Only the cost of acquisition can be deducted. Malhotra explains that no deduction is permitted for transaction charges, mining costs, brokerage, electricity, internet expenses or any other expenditure. The loss rules are harsher: a loss on Bitcoin cannot be set off against a gain on Ethereum and even another bitcoin, cannot offset equity or any other income, and cannot be carried forward. “Government’s taxation policies are visibly cautious and not investorfriendly in the crypto space,” Malhotra says.One relief, however, exists. “Wallet-towallet transfers between accounts held by the same person are not taxable transfers, as there is no change in ownership,” according to Bajaj. Everything else—sale for fiat, crypto-to-crypto swaps, P2P (peer-to-peer) or OTC (over-the-counter) trades—is taxed identically at 30%. On when an investor becomes a trader with business income, Bajaj observes that the Act provides no crypto-specific test; the call “should ideally depend on factors such as frequency, volume, intention and manner of holding.”Section 194S requires 1% TDS on consideration paid to residents for VDA transfers — above Rs.50,000 a year for ‘specified persons’ (broadly, certain individuals and HUFs) and Rs.10,000 for others.
The BriefWire