Virtual Digital Assets Taxation in India: Complete Guide for 2026

India’s rules around Virtual Digital Assets (VDAs) taxation aren’t just complicated-they’re designed to make crypto investing feel like a high-stakes game with strict penalties for mistakes. If you’re buying, selling, or holding Bitcoin, Ethereum, NFTs, or any other digital asset in India, you’re playing by rules that changed dramatically in 2022 and got even tighter in 2025. Forget what you know about capital gains from stocks or real estate. VDAs operate under a completely different system-one that doesn’t care if you held your Bitcoin for two days or two years. The tax rate is always 30%. No exceptions. No deductions. No loss offsets. And if you’re not careful, you’ll get hit with 1% TDS on every transaction over ₹10,000. Here’s the cold truth: if you’re making money from crypto in India, the government is taking 30% of your profit before you even see it. And if you lose money? Tough luck. You can’t use those losses to reduce your tax bill on your salary, your business income, or even your stock market gains. The system doesn’t let you balance the books. It treats every crypto trade like a standalone bet-with no safety net. Let’s break it down, step by step, so you know exactly what you’re up against-and what you can still do about it.

What Counts as a Virtual Digital Asset?

The Indian government didn’t leave room for guesswork. Under Section 2(47A) of the Income Tax Act, a Virtual Digital Asset is anything that:

• Isn’t Indian or foreign currency
• Exists as digital code, token, or data
• Has value or functions as a store of value or unit of account
• Can be transferred, stored, or traded electronically

That covers Bitcoin, Ethereum, Solana, NFTs, stablecoins like USDT, and even tokens from decentralized finance (DeFi) protocols. If it’s digital, tradable, and not rupees or dollars, it’s a VDA. Even if you bought a digital artwork as an NFT and later sold it for more, that’s taxable. If you mined Bitcoin, the coins you earned are taxable when you sell them. There’s no loophole here.

The 30% Flat Tax: No Exceptions

Section 115BBH of the Income Tax Act says it plainly: all gains from VDAs are taxed at 30%. No matter your income slab. No matter how long you held the asset. No matter if you’re a day trader or a long-term holder. The tax rate is fixed. Compare that to stocks or real estate. With stocks, if you hold for over a year, you pay just 10% on gains above ₹1 lakh. With real estate, long-term gains get indexation benefits that cut your tax burden by nearly half. With VDAs? None of that. You get 30%-period. And here’s the kicker: the only thing you can deduct is the cost of acquisition. That means the price you paid to buy the asset. Everything else? Gone. Transaction fees? Not deductible. Gas fees on Ethereum? Not deductible. Mining equipment costs? Not deductible. Even the fees you paid to transfer crypto from one wallet to another? Irrelevant. The tax department only cares about what you paid to buy it and what you sold it for.

Losses Can’t Offset Anything

This is where most investors get blindsided. If you bought Bitcoin at ₹40 lakh and sold it at ₹25 lakh, you lost ₹15 lakh. You might think, "Great, I can use this loss to reduce my taxable income from my job or my stock gains." Nope. Under Section 115BBH, losses from VDAs cannot be set off against any other income. Not salary. Not business income. Not capital gains from stocks or property. Not even gains from other VDAs in the same year. The only thing you can do is carry forward the loss-for eight years. And even then, you can only use it to offset future VDA gains. So if you lost ₹15 lakh this year, you can only apply it against profits you make from crypto in the next eight years. If you never make another profit? That loss disappears. It’s like a tax write-off with an expiration date you can’t control.

TDS: 1% on Every Big Transaction

If you’re trading on Indian exchanges like WazirX, CoinDCX, or ZebPay, you’ve probably noticed a 1% deduction on your withdrawals or sales. That’s Tax Deducted at Source (TDS) under Section 194S. It kicks in when:

• You’re a regular person (non-specified person) and your total VDA transactions exceed ₹10,000 in a financial year
• You’re a specified person (like someone with annual income under ₹1 crore) and your transactions exceed ₹50,000

The exchange automatically deducts 1% and pays it to the government. So if you sell ₹5 lakh worth of Ethereum, ₹5,000 gets taken out before you even get the money. That’s money you never see. Worse? If you don’t provide your PAN, the TDS jumps to 20%. And if you’re a non-filer of income tax returns, the old 206AB rule (which could have raised TDS to 5%) was removed in April 2025-but that doesn’t mean you’re safe. The 1% still applies, and the exchange will still report everything to the tax department. You’ll get a TDS certificate (Form 26QE) from the exchange. Keep it. You’ll need it when filing your return.

How to Report VDAs in Your Tax Return

You can’t ignore this. If you traded VDAs in FY 2025-26, you must file ITR-2 or ITR-3. You can’t use ITR-1. In the return, you’ll fill out Schedule VDA. You need to report:

• Date of acquisition
• Date of transfer
• Cost of acquisition
• Full value of consideration (sale price)
• TDS deducted

For crypto-to-crypto trades (like swapping ETH for SOL), the tax department treats it as a sale. You must calculate the INR value of the asset you gave up at the time of the swap. Exchanges like CoinDCX and WazirX provide this data, but if you used a non-Indian wallet or DeFi protocol, you’re responsible for tracking the INR value yourself.

What You Can’t Deduct (And Why It Matters)

Let’s say you spent ₹50,000 on mining rigs, paid ₹15,000 in gas fees, and spent ₹20,000 on a crypto tax software. Under normal rules, you’d deduct these as business expenses. But for VDAs? Not allowed. The government’s logic is simple: VDAs are treated as investments, not businesses. So unless you’re running a crypto mining company as a registered business, you can’t claim any operating costs. This hits miners and DeFi traders hard. If you earn crypto through staking or liquidity pools, that income is taxed as “other income” at your slab rate. Then, when you later sell it, you pay another 30% on the gain. You’re taxed twice-once on the income, once on the profit. No double taxation relief. No credits. Just two layers of tax.

Real-World Impact: Who’s Getting Hurt?

The numbers don’t lie. According to KPMG’s 2023 survey, 68% of institutional investors cut their Indian crypto exposure by half after the new rules. BlackRock’s India team said it made the country non-competitive for global crypto funds. Individual investors aren’t faring much better. On Reddit, users like "CryptoSaverIN" posted about losing ₹2.87 lakh on Ethereum and being unable to offset it against their ₹18 lakh salary. That’s a ₹5.4 lakh tax bill on the salary alone, while the crypto loss vanished. Trustpilot reviews show 62% of complaints on Indian exchanges are about TDS errors-over-deductions of 15-22%. Some users got charged TDS on transfers between their own wallets. Others were charged twice on the same trade. The system is automated, but it’s not smart.

What People Are Doing to Adapt

Despite the harsh rules, people are still trading. Why? Because the returns can still be massive. A WalletInvestor survey found 61% of users keep trading because they believe the upside outweighs the tax hit. Here are the workarounds people are using:

• Gifting to family members: If your spouse or parent is in a lower tax bracket, you can gift VDAs to them. When they sell, they pay tax on the gain. This is legal, as long as you don’t get the money back.
• Using ETFs: Some traders are shifting from direct crypto to Bitcoin ETFs (when available). These are taxed as securities, not VDAs. That means long-term gains get indexation benefits. One Reddit user claimed a 3.2% higher net return by switching.
• Timing sales: Selling in a year when your salary income is low can help minimize the impact of the 30% tax.

These aren’t loopholes. They’re strategies. But they require planning, record-keeping, and sometimes professional help.

What’s Changing in 2026?

The Income Tax Act, 2025, which came into effect in August 2025, didn’t change the 30% rate. But it did make two big shifts:

• Tax Year replaces Financial Year: Your tax period now aligns with the calendar year (January-December), not April-March. This matches global norms and simplifies reporting for international traders.
• Digital-first enforcement: The tax department now uses AI to cross-check wallet addresses, exchange data, and blockchain records. If your transaction history doesn’t match your return, you’ll get a notice-no warning.

The government is also pushing a new “Virtual Asset Service Providers Bill,” which could require all crypto platforms operating in India to get a license. That might mean stricter KYC, more reporting, and even higher compliance costs.

What You Need to Do Now

If you’re active in crypto in India, here’s your checklist:

1. Track every transaction: Use a crypto tax tool like Koinly or CoinTracker. Export your history from every exchange and wallet.
2. Save proof of purchase: Screenshots of buy orders, transaction IDs, wallet addresses. If the tax department asks, you need to prove what you paid.
3. Report all income: Staking rewards, airdrops, mining income-all taxable. Don’t assume they’re "gifts" or "free money."
4. Check your TDS: Log into your exchange account and download Form 26QE. Match it with your transaction history.
5. File ITR-2 or ITR-3: Don’t use ITR-1. Schedule VDA is mandatory.
6. Keep records for 8 years: The tax department can audit you anytime within that window.

Final Reality Check

India’s VDA tax system isn’t designed to encourage crypto adoption. It’s designed to capture revenue. And it’s working. The government collected ₹3,920 crore in FY2023-24-27% more than expected. By FY2025-26, projections say it could hit ₹9,200 crore. The trade-off? Simplicity for the government, complexity for the user. No more guesswork on tax rates. But also no more flexibility. No loss offsets. No deductions. No mercy. If you’re still trading, you’re either betting big on future price surges-or you’re already paying the tax premium and hoping the returns make it worth it. There’s no perfect solution. But if you’re smart, you’ll treat this like a business. Track everything. Plan ahead. And don’t assume the system will be kind.