Crypto taxes in India are no longer a grey area. The rules are defined, the reporting requirements are clearer than before, and the system increasingly relies on transaction trails through 1% TDS and return disclosures. What makes crypto compliance challenging is not the headline rate it’s the mechanics: tax is calculated per transfer, deductions are limited, losses have restricted treatment, and swaps or peer-to-peer trades can create avoidable mismatches if records aren’t clean.

This guide explains crypto taxation in India in plain terms, tracks how the rules evolved from 2022 to 2026, clarifies what counts as a taxable crypto transaction, shows how to calculate tax with examples, and walks through the filing workflow so you can report VDAs correctly in your ITR.

At a glance:

• Crypto is taxed as a Virtual Digital Asset (VDA) in India, with a special tax regime for transfers.

• Gains from transferring VDAs are taxed at 30% (plus applicable surcharge and 4% cess).

• Only cost of acquisition is allowed; most other expenses aren’t deductible, and VDA losses can’t be set off or carried forward.

• 1% TDS applies on the transaction value (consideration), not profit, once thresholds are crossed; in peer-to-peer trades, the buyer deducts TDS.

• Reporting is transaction-wise in Schedule VDA (ITR-2/ITR-3) on the Income Tax portal.

• From 1 April 2026, Finance Bill 2026 proposes penalties for prescribed reporting entities that fail to file (or misreport) crypto-asset transaction statements.

What Is Crypto Taxation?

In India, crypto taxation refers to the income-tax rules that apply to cryptocurrencies and related tokens treated as Virtual Digital Assets (VDAs). In practical terms, it covers three things:

1.How Profits Are Taxed When You Transfer Crypto

If you sell, swap, or otherwise transfer a VDA and make a gain, the income is taxed under the special regime (30% plus applicable surcharge and cess). The VDA framework is anchored in the statutory definition introduced via the Finance Bill, 2022, with scope for notified inclusions/exclusions.

2.How 1% TDS Creates A Transaction Trail

Separate from your final income-tax liability, section 194S imposes 1% TDS on the consideration for VDA transfers above thresholds. This is designed to improve traceability and reporting; responsibility differs across peer-to-peer vs exchange-based transactions.

3.How Certain Receipts (such as gifts) May Be Taxed On Receipt And Again On Later Transfer

If you receive crypto without consideration (or for inadequate consideration), it may fall within the gift/receipt taxation framework (section 56(2)(x)), and then any later transfer is evaluated under the VDA transfer regime. The notified ITR form reflects this by asking how the “cost of acquisition” should be captured in gift scenarios (including where tax is paid under section 56(2)(x)).

Crypto Tax Evolution (2022–2026)

India’s crypto tax framework has evolved in three clear stages definition, taxation + TDS, and now stronger reporting signals.

2022: VDA Definition, 30% Tax Regime, And 1% TDS Framework

• Finance Act 2022 introduced the VDA regime and inserted section 115BBH (effective from 1 April 2022) setting out the 30% tax on income from transfer of VDAs, plus strict limits on deductions and loss set-off.

• CBDT issued detailed TDS operational guidance for section 194S through Circular 14/2022 (other transactions such as peer-to-peer).

2025–2026: Expanded Definition And Stronger Reporting Posture

• The Income-tax Act definition of “virtual digital asset” (section 2(47A)) is expanded via Finance Act 2025 to explicitly include “crypto-asset” (sub-clause (d)) from 1 April 2026.

• Budget/Finance Bill 2026 proposes penalties under the new Income-tax Act, 2025, for failures or inaccuracies in crypto-asset transaction statements (₹200/day, ₹50,000).

Crypto Taxation in India Explained

Crypto taxation in India is built around a simple framework, but the details matter: crypto is treated as a Virtual Digital Asset (VDA), gains from transfers are taxed at a special rate, and 1% TDS creates a transaction trail. This section breaks down the rules in plain terms so you can understand what applies before you calculate tax or start filing.

1.What The 30% Tax Actually Applies To

Section 115BBH applies when your total income includes income from the transfer of any VDA. The law sets the tax on that income at 30% (plus applicable surcharge/cess).

2.Deductions Are Restricted

For income covered under 115BBH, no deduction is allowed except the cost of acquisition. That means fees, platform charges, gas costs, and other trading expenses generally do not reduce taxable income under this provision.

3.Loss Set-Off And Carry-Forward Are Blocked

Loss from transfer of a VDA cannot be set off against income computed under any other provision and cannot be carried forward to future years.

4.The ITR Reporting Path Is Explicit

The Income Tax e-filing FAQ clearly states that Schedule VDA exists in ITR-2 and ITR-3 and that VDA income is disclosed transaction-wise.

What Is Considered a Taxable Crypto Transaction?

A “taxable event” is not limited to converting crypto into INR. In India, tax is determined by whether a transfer creates taxable income. Here are the most common situations:

A practical note on “gift” cost basis

The ITR form’s Schedule VDA instructions explicitly ask, in case of a gift, to enter the amount on which tax is paid u/s 56(2)(x) (if any) or the cost to the previous owner in other cases.

1% TDS on Crypto: When It Applies, Who Deducts, and How It Works

TDS is where many investors get confused because it’s about transaction reporting, not just final tax liability.

1) The Rate And Thresholds

Circular 14/2022 explains:

• 1% TDS is deducted on consideration for the transfer of VDA.

• No deduction if annual consideration does not exceed:

  • ₹50,000 when payable by a “specified person.”

  • ₹10,000 for others

It also defines “specified person” (including turnover/receipts thresholds based on the preceding FY).

2) Peer-To-Peer: Buyer Deducts And Deposits

For a peer-to-peer transaction (buyer to seller without exchange), the circular states that the buyer is required to deduct tax under section 194S and deposit it as per the rules.

It also notes the quarterly reporting requirement (Form 26Q) and that Form 26QE has been introduced for specified persons.

3) Exchange Transactions: CBDT Provides Operational Relief

Circular 13/2022 provides detailed guidelines to prevent multiple deductions in exchange-based trades and clarifies when the exchange (or broker) can deduct and report TDS, including filing of a quarterly statement (Form 26QF in certain exchange arrangements).

4) Crypto-to-Crypto Swaps And “in kind” Consideration

Both Circular 13/2022 and Circular 14/2022 address the “in kind/exchange” problem and the requirement to ensure tax is paid before releasing consideration. They also explain that in a VDA-to-VDA exchange, both parties are buyer and seller, so both may need to pay tax and record challan evidence for reporting.

5) TDS Is Calculated On Consideration Less GST (when applicable)

Circular 14/2022 clarifies that TDS is on consideration for transfer of VDA less GST.

How To Calculate Crypto Taxes (With Example)

Crypto tax in India is calculated per transfer, so accuracy depends on clean records, consistent INR valuation, and correct cost basis for each transaction. The example below shows the exact steps to compute taxable income and account for 1% TDS where applicable.

Step 1: Compute Income Per Transaction

For each taxable transfer:

Income = Consideration received − Cost of acquisition

Only cost of acquisition is permitted as deduction under 115BBH; other expenses are not allowed for computing that income.

Step 2: Apply The 30% Rate (plus surcharge/cess as applicable)

The Income Tax portal FAQ states that VDA gains are subject to a 30% tax, along with an applicable surcharge and a 4% cess under section 115BBH.

Step 3: Adjust For TDS Credits

TDS under 194S is a credit mechanism your final payable tax may reduce if TDS has already been deducted and appears in your tax statements.

Example 1: Simple buy → sell (INR)

• Buy BTC: ₹2,00,000

• Sell BTC: ₹2,60,000

• Income (gain): ₹60,000

• Tax @30%: ₹18,000

• Cess @4% on ₹18,000: ₹720

• Total (ignoring surcharge): ₹18,720

• TDS @1% on consideration (₹2,60,000): ₹2,600 (if applicable based on threshold)

So your net payable may reduce by the TDS credit, depending on what’s reflected in your statements.

Example 2: Crypto-to-crypto swap (ETH → BTC)

Suppose you swap ETH for BTC on an exchange.

You need:

• the INR value of what you disposed of (ETH) at the time of swap

• your cost of acquisition for the ETH disposed

Circular 14/2022 explains that in a VDA-to-VDA exchange, both parties are buyer/seller and tax/TDS handling must be ensured before release; exchanges can also adopt alternative mechanisms under Circular 13/2022 for VDA-to-VDA trades.

Practical approach (record-keeping):

• Take the exchange trade confirmation showing quantity and timestamp

• Use the exchange’s INR pair rate at that timestamp (or a documented conversion method)

• Compute gain for the disposed asset (ETH), then treat the received BTC’s INR value as its new cost basis for future transfers (keep it consistent across your ledger)

How To File Crypto Taxes In India?

Filing becomes manageable when you treat it as a workflow: consolidate data → compute transaction-wise income → reconcile TDS → fill Schedule VDA.

1) Choose The Right ITR Form

• If you’re not reporting business/profession income, many taxpayers use ITR-2.

• If you have business/profession income (including where you file ITR-3 for other reasons), you may use ITR-3.

Either way, the portal confirms Schedule VDA is in ITR-2 & ITR-3 for transaction-wise disclosure.

2) Prepare Transaction-Wise Reporting (non-negotiable)

The Income Tax portal states disclosure is transaction-wise in Schedule VDA. The ITR-2 manual also instructs that you add income from the transfer of VDAs in Schedule VDA.

The notified ITR form shows the Schedule VDA table structure (date of acquisition/transfer, consideration, cost, and income enter nil in case of loss).

3) Reconcile TDS (194S) Before You Submit

• Download exchange-wise TDS reports

• Match deducted amounts with your tax credit visibility (commonly via Form 26AS/AIS)

• For peer-to-peer trades where you deducted TDS, ensure the challan/statement trail is intact and reported as required (Forms 26Q/26QE where applicable).

4) Populate Schedule VDA carefully

In Schedule VDA you typically enter, per transaction:

• Date of acquisition and transfer

• Consideration received

• Cost of acquisition

• Income from transfer (gain)

The notified form explicitly mentions how cost is captured for gifts (if tax paid under 56(2)(x), enter that amount; otherwise cost to previous owner).

5) Check How Schedule VDA Flows Into Capital Gains

The ITR validation rules and portal guidance show that “Income from transfer of Virtual Digital Assets” flows into the Capital Gains schedule (C2).

Common Mistakes That Trigger Mismatches And How To Avoid Them

Common mismatches usually happen when your exchange data, TDS credits, and ITR disclosure don’t align transaction-by-transaction. Use this checklist to avoid the most frequent filing and reconciliation errors.

• Reporting net profits instead of transaction-wise entries in Schedule VDA

• Treating crypto-to-crypto swaps as non-taxable (missing “transfer” events)

• Using inconsistent INR valuation methods across exchanges/wallets (rate/date/time mismatches)

• Ignoring 1% TDS thresholds and failing to deduct in eligible peer-to-peer trades

• Incorrectly applying TDS on profit instead of consideration (transaction value)

• Missing or mismatching TDS credits due to non-reconciliation with AIS/Form 26AS/TDS statements

• Duplicate reporting of the same trade across multiple exports (spot + convert + P2P records overlap)

• Excluding transactions done via international exchanges or external wallets from the tax working file

• Not capturing date/time of trades (leading to wrong INR conversion and cost basis errors)

• Mixing fees/charges into cost adjustments that are not permitted under the 115BBH computation method

• Misclassifying airdrops, rewards, staking or other receipts without consistent treatment across records

• Incorrect cost basis for gifted VDAs (not following the Schedule VDA cost logic for gifts)

• Failing to maintain supporting documents (contract notes, trade confirmations, challans for self-deducted TDS)

• Leaving out closed positions when the exchange export is incomplete or filtered by date range

• Not matching Schedule VDA totals with the capital gains flow in the ITR computation summary

• Submitting without a final cross-check of totals: consideration, cost, income, and TDS captured per transaction

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Conclusion

Crypto taxes in India are structured around a clear framework: 30% tax on income from VDA transfers, limited deductions (cost-only), restricted loss treatment, and 1% TDS to create an audit trail.

If you treat every transaction as reportable export histories, value swaps in INR, reconcile TDS, and fill Schedule VDA transaction-wise you avoid most of the common errors and mismatches.

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FAQs 

1) Do I need to report crypto if I only bought and held?

If there’s no transfer, 115BBH income may not arise but record-keeping matters for future cost basis and accurate Schedule VDA reporting when you sell or swap.

2) Is 1% TDS deducted on profits or on the full transaction value?

TDS is on the consideration for transfer (transaction value), not on profit.

3) Who deducts TDS in a peer-to-peer trade?

CBDT guidance states that in peer-to-peer transactions, the buyer is required to deduct TDS under section 194S.

4) Are crypto-to-crypto swaps taxable?

CBDT circulars explicitly address VDA-to-VDA exchanges and the requirement to ensure tax is paid before releasing consideration, with reporting expectations.

5) Where do I report crypto in my ITR?

The Income Tax portal states there is a separate Schedule VDA in ITR-2 and ITR-3 for transaction-wise disclosure.

6) If I received crypto as a gift, how is cost recorded?

The notified ITR form’s Schedule VDA notes that for gifts, you enter the amount on which tax is paid u/s 56(2)(x) (if any), otherwise cost to previous owner.