Cryptocurrency / Digital Assets — Taxation & ITR Filing Guide (AY 2025

Section 2(47A) / Section 2(14) of IT Act, 1961: Defines “digital assets” and virtual currencies as capital assets for tax purposes.
Section 194S (TDS): Introduced in Finance Act, 2023, mandates 1% TDS on payments for transfer of digital assets by residents.
Section 195 (TDS for NRIs): Applies when payments are made to NRIs.
Section 45 & 28: Governs capital gains vs business income treatment.
Section 10(38) and Section 48: Applicable for long-term capital gains and cost computation (if held as capital asset).
Rules under Finance Act 2022–23: Define TDS/TCS reporting and treatment of digital assets.

Activity / Scenario	Income Head	Tax Rate / Treatment	Remarks
Occasional sale of crypto (individual/HUF)	Capital Gains	STCG: slab rate (≤36 months); LTCG: 20% w/ indexation (>36 months)	Considered a capital asset if not traded frequently.
Frequent/professional trading / mining	Business Income	Individual/HUF: slab rate; Company: 30%	Deductible expenses include mining cost, platform fees, exchange charges.
Mining / staking rewards	Business Income / Other Sources	Slab rate / corporate rates	Habitual → business income; casual → Other Sources.
Airdrops / Gifts	Capital Gains / Other Sources	Taxable at FMV on receipt	Recognize income on the date of receipt.
Interest / Yield on crypto deposits	Income from Other Sources	Slab rate	Platforms offering staking/lending interest.

NRI Specifics:

Activity	Income Head	Rate	Notes
Crypto sale by NRI	Capital Gains	STCG: 30%, LTCG: 20% w/ indexation	Only Indian-sourced gains taxable.
Mining / trading in India	Business Income	Slab rate / corporate	Applies if trading/mining is carried out in India.
Crypto received as gift from Indian resident	Other Sources	As per FMV	Indian-sourced gifts taxable.

Type	Section	Rate	Applicability / Threshold
Payment for digital assets (resident)	194S	1% on gross	Applies only to residents; threshold ₹50,000/FY (individual/HUF).
Payment to NRI	195	20% + surcharge & cess	Indian-sourced crypto payments to NRIs; TDS credit adjustable in ITR.

Key Point: TDS under 194S or 195 is not the final tax; full computation of gains/losses is required in ITR.

AIS shows only TDS/TCS amounts credited to the taxpayer.
AIS does not provide details required for ITR filing, such as:
1. Date of acquisition & sale
2. Quantity of crypto transferred
3. Cost of acquisition & sale consideration
4. Classification of income (capital gains vs business income)
5. Deductible expenses (exchange fees, mining costs, etc.)

Implication: Taxpayer must compute taxable income independently and report it correctly in ITR.

Resident Individuals / HUF
- Schedule CG: Report capital gains from crypto held as investment.
- Schedule BP / Other Sources: For trading, mining rewards, staking income.
- Claim TDS credit: From Form 26AS/AIS.
- Declare gains/losses accurately — not just TDS figures.
NRI / Foreign Residents
- Report Indian-sourced crypto income only.
- TDS under 195 can be claimed as credit in ITR.
- Income classification (capital gains vs business income) applies as per Indian law.
Mandatory Disclosures
- Transaction details (acquisition date, sale date, quantity, cost).
- Digital asset exchanges/platforms used (if required).
- TDS/TCS details from Form 26AS / AIS.
- Expenses incurred for mining, trading, staking (if business income).

Full computation of gains/losses is mandatory, AIS/TCS alone is insufficient.
TDS is not final tax liability; ITR must reflect correct income.
Residents: Deduct TDS under 194S; NRIs: Deduct under 195.
Income classification is critical for allowable deductions and tax computation.
Filing ITR is mandatory if total income exceeds basic exemption limit.
Maintain transaction records for audit/tracking — exchanges do not report full details.

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