Budget Update
- In the Finance Act 2022, significant amendments have been made to the taxation framework for Virtual Digital Assets (VDAs) under the Income-tax Act, 1961.
- A new section 115BBH imposes a 30% tax on the transfer of VDAs, with no deductions allowed except for the cost of acquisition.
- Additionally, section 194S mandates a 1% tax deduction on VDA transaction payments.
- Furthermore, a new section 285BAA introduces reporting obligations for entities dealing with crypto assets, requiring them to furnish transaction details to the income-tax authority.
- Provisions for rectifying defective statements and addressing inaccuracies have also been established.
- The definition of VDAs has been expanded to include any crypto-asset using distributed ledger technology.
- These amendments will come into effect from 1st April 2026, marking a significant step in regulating and taxing digital assets in India.
About Virtual Digital Assets (VDAs)
Virtual Digital Assets including Cryptocurrencies and NFTs, have been categorized as undisclosed income.
This means that any crypto holdings not reported properly will face a higher tax rates, aligning them with other forms of undisclosed income like gambling and horse racing earnings.
Taxation of Different Crypto Transactions
Tax on Selling Cryptocurrency and NFT
- The income from cryptocurrency transactions are taxed at 30% (plus applicable surcharge and 4% cess) on crypto Profits from April 1, 2022, onwards.
- TDS @ 1% on transactions involving cryptocurrencies from Buyer. If taxpayers trade on foreign exchange, they must manually deduct TDS and file their TDS returns.
Tax on AirDrops
Crypto airdrops are treated as “Income from Other Sources” and are taxed according to the individual tax slab.
- The tax is calculated based on the fair market value of the token when you receive them, even though you didn’t buy them.
- If you later sell, swap, or spend these coins, you’ll be subject to pay a 30% tax on profit from the transaction.
Tax on Mining Cryptocurrency
- It is taxed at individual income tax slab rate based on the fair market value of the mined cryptocurrencies in INR on the day you receive them.
- If you sell, swap, or spend the mined coins and make a profit, a 30% tax will apply to that gain.
Tax on Future or Derivatives Trading
- Crypto future involves buying or selling a specified amount of cryptocurrency at a pre-determined prices for future delivery.
- 30% tax or income from Business just like FNO from equity then slab rates are applicable.
ITR Form to Choose
- ITR-2: To report crypto profits as capital gains.
- ITR-3: To report crypto income as business income.
Note : Schedule VDA introduced for detailed reporting
Setting of Losses
Investors are not allowed to offset loses from one VDA against gains from another or any other source of income.
Penalties Applicable if Crypto Gains Not Reported in ITR
- If unreported crypto gains are detected during an income tax raid or inquiry, tax authorities can levy a 60% tax along with a hefty 50% penalty on the tax amount.
- It is crucial for all crypto investors to duly report their gains under the schedule VDA section of their Income Tax Return.
Who Deducts TDS?
Indian exchanges: Auto-deducted and deposited
- P2P & international trades: Buyer must deduct & deposit TDS.
- Crypto-to-crypto trades: Both buyer & seller must pay 1% TDS.
Exemptions
- Specified persons: No TDS if transactions ≤ ₹50,000/year
- Other taxpayers: No TDS if transactions ≤ ₹10,000/year
TDS Compliance
TDS must be deposited using Form 26QE within 30 days of the transaction month.