Cryptocurrency, once a niche interest for tech enthusiasts, has rapidly evolved into a significant digital asset class in India. Even though digital currencies like Bitcoin and Ethereum are not yet recognised as legal tender, they are equally not illegal—a grey zone that has long left investors and businesses grappling with uncertainty about how to manage their crypto holdings.
However, in recent years, the Indian government has moved decisively to bring order to the crypto landscape. The first significant step came in the Union Budget of 2022, when the government officially categorised digital assets, including cryptocurrencies and NFTs, as Virtual Digital Assets (VDAs) under the Income Tax Act.
The categorisation has profound tax implications. Under Section 115BBH of the Income Tax Act, profits from the sale of VDAs are taxed at a flat rate of 30%. Importantly, only the cost of acquisition can be deducted—there’s no allowance for any other expenses or offsetting losses. Furthermore, every crypto transaction exceeding Rs 10,000 attracts a 1% Tax Deducted at Source (TDS), applicable to either the buyer or seller, depending on the transaction specifics. An additional 4% cess is imposed on the tax liability, further increasing the effective tax burden on investors.
What’s new this year
The Union Budget of 2025 has introduced a fresh mechanism for documenting cryptocurrency transactions. For the financial year 2025-26, individuals and businesses dealing in VDAs must report their crypto profits in a newly created section of the Income Tax Return (ITR) known as Schedule VDA. This specific disclosure aims to simplify crypto tax reporting and provide tax authorities with clearer insights into digital asset transactions.
Moreover, it has now become mandatory for crypto exchanges and related platforms to furnish detailed transaction data to tax authorities, ensuring compliance and deterring tax evasion.
While the regulatory framework may appear complex, industry experts stress the importance of understanding the rules and maintaining meticulous records.
Sathvik Vishwanath, Co-founder and CEO of Unocoin, offered crucial guidance for investors navigating crypto tax filings: “Crypto reporting boils down to two pillars: correct form selection and clean audit trails. Investors who treat crypto as a long-term asset should switch to ITR-2; active traders or anyone booking intraday P&L belongs in ITR-3, while small proprietors on presumptive tax may use ITR-4.
Classify every rupee: sales of coins or NFTs are capital gains if you hold and occasionally exit; frequent flipping, staking-as-a-service or market-making counts as business income. Airdrops, referral bonuses and staking rewards slot under ‘Income from Other Sources’.
From FY 2022-23 onward, gains face a 30 % flat tax plus 4 % cess—no standard deductions, no set-off against other losses. Exchanges already withhold 1 % TDS, but taxpayers must still reconcile Form 26AS and report the gross sale value.
Finally, maintain a secure spreadsheet or software export of date, quantity, cost base, exchange and wallet hash for each trade. Proper records are your best defence if the taxman seeks clarification.”
CA Sonu Jain, Chief Risk and Compliance Officer, 9Point Capital, also stressed the importance of full disclosure: “Investors need to declare their transactions made on all crypto platforms, including on the blockchain. All income from crypto trading is required to be declared under the Schedule VDA section of the ITR. TDS deducted on crypto trading by exchanges can be used to offset the tax liability when filing the ITR.”
Crypto filing in FY2025-26
The government’s latest guidelines outline clear steps for investors to remain compliant:
Identify the correct ITR form based on the nature of crypto income—ITR-2 for capital gains, ITR-3 for business income, or ITR-4 for presumptive taxation.
Classify income accurately as capital gains, business income, or income from other sources like airdrops and staking rewards.
Calculate gains by recording purchase and sale prices, dates, and exchange platforms used.
Report details in Schedule VDA of the ITR, listing each transaction or consolidated figures if permitted.
Disclose foreign crypto holdings in Schedule FA, including exchange names, country, balances, and wallet IDs.
Cross-check TDS entries with Form 26AS to ensure proper credit.
File a revised return under Section 139(8A) if crypto income was omitted in earlier filings.
Maintain thorough documentation, including transaction histories, exchange reports, wallet addresses, and TDS certificates.
Given the increasingly tight regulatory environment, crypto investors in India cannot afford to be lax. Proper reporting under the new Schedule VDA, coupled with precise record-keeping, is essential not just for avoiding penalties but also for ensuring that gains — and tax liabilities — are accurately accounted for.
As crypto continues to evolve, India’s tax framework aims to strike a balance between embracing digital innovation and maintaining financial oversight, underscoring the government’s intent to integrate virtual assets into the formal economy while ensuring tax compliance.