Cryptocurrency Tax in India & ITR Filing — Complete Guide for FY 2025-26

Cryptocurrency taxation in India has been clearly defined since the Finance Act 2022 introduced Section 115BBH and Section 194S. If you trade or invest in Bitcoin, Ethereum, or any other virtual digital asset (VDA), this guide explains exactly how to calculate your tax and report it in your ITR for FY 2025-26.

What is a Virtual Digital Asset (VDA)?

The Income Tax Act defines VDAs broadly to include cryptocurrencies, NFTs, and any digital representation of value that can be transferred, stored, or traded electronically. This covers:

• Bitcoin (BTC), Ethereum (ETH), and all altcoins
• Stablecoins (USDT, USDC, DAI)
• Non-Fungible Tokens (NFTs)
• Any other digital assets notified by the government

Tax Rates on Cryptocurrency (Section 115BBH)

Key Rules Under Section 115BBH

Understanding these rules is critical to avoiding mistakes:

1. No Deduction for Expenses

Unlike other business income, you cannot deduct expenses like internet charges, electricity, exchange fees, or brokerage from your crypto gains. The only deduction allowed is the cost of acquisition. This makes the effective tax rate on net profits very high.

2. No Loss Set-Off

Crypto losses cannot be set off against any other income. If you lose money on one crypto trade and profit on another, you cannot net them — each trade is taxed independently. Losses also cannot be carried forward to future years.

3. Tax on Crypto-to-Crypto Trades

Every time you exchange one cryptocurrency for another (e.g., BTC to ETH), it is considered a taxable event. You must calculate the fair market value of the crypto received in INR and pay 30% on any gain. This makes frequent trading extremely tax-inefficient.

4. No Indexation Benefit

Unlike capital gains on other assets, crypto gains do not qualify for indexation. You pay 30% on the actual profit without any inflation adjustment.

1% TDS on Crypto Transfers (Section 194S)

From July 2022, a 1% TDS applies on transfers of VDAs exceeding specified thresholds:

The TDS is deducted at the time of:
- Transferring crypto from an Indian exchange to a wallet
- Selling crypto for INR
- Exchanging one crypto for another (on Indian exchanges)

Important: TDS deducted is reflected in Form 26AS and can be claimed as a credit against your total tax liability when filing your ITR.

How to Report Crypto in Your ITR

Step 1: Calculate Your Crypto Gains

For each crypto transaction during FY 2025-26, calculate:

Gain = Sale Value (in INR) — Cost of Acquisition (in INR)

You need a transaction-wise statement showing every buy, sell, swap, and transfer. Most Indian exchanges provide a tax report or transaction CSV. For international exchanges or DeFi trades, you may need a crypto tax software like CoinTracking, Koinly, or CryptoTaxCalculator.

Step 2: File the Correct ITR Form

Income from cryptocurrency is treated as "Income from Other Sources" under Section 56 — not business income and not capital gains. Therefore:

• ITR-2 — If you only have crypto income and salary/capital gains (no business income)
• ITR-3 — If you are a professional/business taxpayer and also have crypto income

Within the ITR form, report crypto gains under the head "Income from Other Sources" → "Income from Virtual Digital Assets" (Schedule VDA).

Step 3: Report Schedule VDA

The income tax portal has a dedicated Schedule VDA form where you report:

• Total consideration received from VDA transfers
• Cost of acquisition
• Net gains taxable at 30%
• TDS deducted under Section 194S

Cryptocurrency Tax Planning

While the rules are strict, here is what you can do:

• Hold long-term: Since every trade triggers 30% tax, minimizing trades reduces your tax burden. HODLing has real tax advantages.
• Track every transaction: Without a complete transaction history, you might miss cost details and overpay tax. Use crypto tax software.
• Verify TDS credits: Ensure all TDS deducted by exchanges is reflected in your Form 26AS before filing.
• Report gifts correctly: Gifts of crypto up to Rs 50,000 in value are exempt from tax in the recipient's hands. Above that, the recipient pays 30%.

Common Mistakes Crypto Taxpayers Make

• Reporting as capital gains: Crypto is NOT capital gains. Using ITR-2 without Schedule VDA will make your return defective.
• Netting gains and losses: You cannot offset crypto losses against gains from other trades. Each trade is taxed separately.
• Ignoring crypto-to-crypto trades: Every swap is a taxable event. Not reporting them leads to income tax notices.
• Missing foreign exchange reporting: If you hold crypto on international exchanges, you may need to report foreign assets in Schedule FA.
• Not reporting airdrops and staking rewards: These are also considered income at their fair market value on the date of receipt.

Frequently Asked Questions

Do I pay tax if I hold crypto without selling?

No. Tax is payable only when you sell, transfer, exchange, or dispose of the crypto. Holding does not trigger tax.

Can I deduct exchange fees from my crypto gains?

No. Under Section 115BBH, only the cost of acquisition is deductible. Trading fees, withdrawal fees, and gas fees are not deductible.

What about airdrops and staking rewards?

Yes. Airdrops, staking rewards, mining income, and interest earned on crypto lending are all taxable as income from other sources at the fair market value on the date of receipt.

Do NRIs pay tax on crypto gains in India?

Yes. NRIs who hold or trade crypto on Indian exchanges are subject to the same 30% tax on gains from Indian-source VDAs. DTAA benefits do not apply to Section 115BBH.

What if I cannot determine the cost of acquisition?

If you bought crypto through peer-to-peer transfers or on exchanges that no longer operate, the tax department expects you to estimate the cost using reasonable methods (exchange rates at the time, wallet records, etc.).