India’s evolving stance on Virtual Digital Assets (VDAs)—including cryptocurrencies, NFTs, and blockchain-based tokens—has shifted from ambiguity to legal clarity. The Income-tax Act, 1961 currently governs the taxation and disclosure of VDAs. Further, the Income Tax Bill, 2025, introduced in Parliament on 13 February 2025, proposes a futuristic and streamlined legal regime effective from 1 April 2026 (FY 2026–27 onward).
For Assessment Year (AY) 2025–26 (relating to Financial Year 2024–25), the taxation and compliance requirements remain governed by the existing law—but with major updates that are critical for taxpayers to understand and comply with.
Updates and Effective Dates
| Update | Effective From | Source/Provision |
|---|---|---|
| Tax on income from VDAs at flat 30% | 1 April 2022 (AY 2023–24 onward) | Section 115BBH, Finance Act 2022 |
| Definition of VDA under Income-tax Act | 1 April 2022 | Section 2(47A) |
| TDS on VDA transfer @1% (Section 194S) | 1 July 2022 | Finance Act 2022 |
| Mandatory use of ITR-2/3 for VDA reporting | AY 2023–24 onward | CBDT-prescribed ITR forms |
| Schedule VDA introduced in ITR forms | AY 2023–24 | ITR-2 and ITR-3 |
| Mandatory foreign wallet disclosure in Schedule FA | AY 2022–23 onward | Rule 114H r/w Schedule FA |
| Income Tax Bill, 2025 introduced in Parliament | 13 February 2025 | Lok Sabha proceedings |
| Effective date of proposed Income Tax Bill, 2025 | 1 April 2026 | Clause 1 of the Bill |
| Extended ITR filing due date for non-audit cases | 15 September 2025 | CBDT Circular No. 06/2025 dated 27 May 2025 |
What is a Virtual Digital Asset (VDA)?
Under the Income-tax Act, 1961 (currently applicable law)
As per Section 2(47A), a VDA includes:
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Any code, number, or token generated through cryptography
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Not being Indian or foreign currency
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Traded or transferred electronically
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Includes cryptocurrencies and NFTs
Under the Income Tax Bill, 2025 (proposed law effective from 1 April 2026)
Section 2(111) expands the scope to include:
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Any cryptographic asset with digital representation of value or rights
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Assets stored, traded, or transferred electronically
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Includes crypto-assets, NFTs, metaverse assets, and future notified digital instruments
How Are VDAs Taxed in AY 2025–26?
Section 115BBH – Flat Taxation at 30%
Applicable since AY 2023–24, all income from transfer of VDAs is taxed at 30% plus cess.
No Deductions or Expenses
Only cost of acquisition is allowed. Brokerage, mining fees, transfer costs cannot be claimed.
Loss Treatment
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No set-off of VDA loss against any other income
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No carry forward of such losses to subsequent years
TDS on VDA Transfers – Section 194S
Effective from 1 July 2022, buyers must deduct TDS at 1% on consideration paid for VDA transfers if:
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Aggregate exceeds ₹50,000 for individuals/HUFs under audit or with income >₹50L
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Exceeds ₹10,000 for other individuals
TDS applies even for barter or in-kind transactions. Defaults attract interest and penalty under Section 201.
Mandatory Filing and Disclosure Rules
ITR Form Requirement (AY 2025–26)
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Use ITR-2 or ITR-3 only
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ITR-1 or ITR-4 is invalid where VDA income is present
Schedule VDA
Introduced in AY 2023–24, it mandates disclosure of:
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Type and name of digital asset
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Date of purchase and sale
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Cost of acquisition and consideration received
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TDS deducted
Foreign Holdings: Schedule FA
If VDAs are held on foreign exchanges or in overseas wallets (e.g., Binance, Coinbase), details must be disclosed under Schedule FA.
Gifting, Inheritance & Unexplained VDAs
| Situation | Law Applicable | Tax Impact |
|---|---|---|
| Gift from non-relative > ₹50,000 | Section 56(2)(x) | Taxable as income |
| Gift from relative, marriage, inheritance | Exempt | Not taxed |
| VDAs without source or explanation | Section 69A r/w 115BBE | Taxed at 77.25% (incl. surcharge & cess) |
Compliance Triggers and Penalties
| Area | Trigger | Risk/Consequence |
|---|---|---|
| TDS not deducted | Purchase value > threshold | Penalty + interest under Sec 201 |
| Wrong ITR form used | Filed ITR-1/4 with VDA income | Return treated as defective |
| Foreign crypto not disclosed | Schedule FA not filled | Penalty up to ₹10 lakh |
| Misreporting VDA gifts | Value > ₹50,000 not shown | Taxed as other income |
| Unexplained crypto income | No supporting source | Taxed at 77.25% under 115BBE |
Practical and Lawful Tax Planning Strategies
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Use Indian Regulated Exchanges: Ensures TDS compliance and automatic reporting in AIS and Form 26AS
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Gift VDAs to Family with Documentation: Gifts to spouse, children, and parents are exempt if documented
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Inherit or Will-Based Transfers: Inheritance and succession-based transfers are tax neutral
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Use of HUF or Family Trust: Legally structure long-term holdings through HUF or trusts
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Maintain Evidence: Keep KYC, trade logs, wallet screenshots, blockchain explorer data, invoices for 8 years
Checklist for AY 2025–26
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✔ Use only ITR-2 or ITR-3 if you had any VDA income
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✔ Disclose foreign-held crypto assets under Schedule FA
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✔ Report all transfers accurately in Schedule VDA
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✔ Ensure TDS under Section 194S is deducted and paid
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✔ Reconcile AIS and Form 26AS before filing
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✔ File return by 15 September 2025 (non-audit) to avoid late fee under Section 234F
Conclusion
The legal regime for VDAs in India is now transparent, stringent, and compliance-heavy. Taxpayers must understand that crypto gains, even if informal or peer-to-peer, attract flat taxation with limited room for deductions or adjustments. The extended filing date till 15 September 2025 offers an opportunity for investors to reconcile their records, ensure accuracy, and avoid costly penalties.
The upcoming Income Tax Bill, 2025 will further deepen the legal recognition of digital assets starting April 2026, making it essential for users to build a compliant and well-documented digital investment trail now.
Disclaimer
This post is intended solely for educational and informational purposes. It is not a substitute for legal or professional tax advice. All laws and updates mentioned are current as of July 2025. Readers should consult a qualified tax professional before taking any action based on this guide.
