Crypto and VDA Taxation in India 2026: The 30% Rate, 1% TDS and the New Reporting Regime

The Indian position on crypto: taxed, tracked, not endorsed

India has never granted virtual digital assets the status of legal tender or a recognised investment class. The RBI has consistently flagged macro-financial and consumer-protection concerns, and crypto is not a SEBI-regulated security. What India *has* done is build a dedicated tax and reporting architecture around VDAs — one that is deliberately unfavourable compared with equity or mutual fund taxation.

Three provisions do the heavy lifting: Section 115BBH (the 30% flat tax), Section 194S (the 1% TDS on transfers) and Schedule VDA in the income tax return. Layered on top, from FY 2026-27, is a mandatory reporting framework for crypto intermediaries aligned with the global Crypto-Asset Reporting Framework. If you hold, trade or receive VDAs, you need to understand all four.

What counts as a Virtual Digital Asset

Section 2(47A) defines a VDA broadly. It covers:

• •Any information, code, number or token (not being Indian or foreign currency) generated through cryptographic means, providing a digital representation of value that can be transferred, stored or traded electronically
• •A non-fungible token (NFT) or any similar token notified by the Central Government
• •Any other digital asset notified by the Central Government

Specifically excluded are gift cards, vouchers, mileage points, loyalty credits and subscription tokens that cannot be exchanged for value, as per CBDT notification. The Digital Rupee (CBDC) issued by the RBI is explicitly outside the VDA definition — it is legal tender, not a VDA.

Section 115BBH: the 30% flat tax and what it does not allow

Income from the transfer of any VDA is taxed at a flat 30%, plus applicable surcharge and 4% health and education cess. There are four hard restrictions:

1. Only cost of acquisition is deductible. Not exchange brokerage, not gas fees, not platform charges, not internet or hardware costs, not interest on money borrowed to buy.

2. No set-off of VDA losses against any other income — not salary, not business income, not capital gains from shares or property.

3. No set-off of loss from one VDA against gain from another VDA. A ₹3 lakh profit on one token and a ₹3 lakh loss on another still produces a ₹3 lakh taxable gain and roughly ₹93,600 of tax.

4. No carry-forward of VDA losses to subsequent years.

There is also no benefit of the basic exemption limit against VDA income in the sense of concessional treatment — the 30% applies from the first rupee of gain. The ₹1.25 lakh long-term exemption and 12.5% LTCG rate available to listed equity have no equivalent here, and there is no concept of long-term vs short-term for VDAs.

## Section 194S: the 1% TDS that creates the audit trail

Any person responsible for paying consideration for the transfer of a VDA must deduct 1% TDS at the time of credit or payment, whichever is earlier. Key points:

• •Thresholds: no TDS if aggregate consideration in the financial year does not exceed ₹50,000 for specified persons (individuals/HUFs without business income, or with turnover below the Section 44AB limits), and ₹10,000 for everyone else.
• •Indian exchanges deduct automatically and issue Form 16E / reflect it in Form 26AS and AIS.
• •Peer-to-peer and wallet-to-wallet transfers place the obligation on the buyer, who must deduct, deposit via Form 26QE and issue Form 16E.
• •Crypto-to-crypto swaps are covered too. Where consideration is in kind, both parties must ensure tax is paid on the value exchanged before the transfer is executed.
• •TDS is not the final tax. It is 1% of gross consideration; your actual liability is 30% of gain. The TDS is credited against your final liability and any excess is refundable.

This 1% is the real reason the department has visibility. Every exchange transfer creates a reportable data point that lands in your Annual Information Statement, and the department has been issuing intimations where Schedule VDA is blank but AIS shows 194S entries.

Schedule VDA: how to report correctly in your ITR

VDA income must be disclosed in Schedule VDA of ITR-2 (if you hold as investment) or ITR-3 (if you trade as a business). For each transaction you report the date of acquisition, date of transfer, cost of acquisition and consideration received. Points investors routinely get wrong:

• •Report every transaction separately, not a netted annual figure. Netting hides the loss disallowance.
• •Loss-making trades must still be reported with gain shown as nil — you cannot use them to reduce other VDA gains.
• •Airdrops, staking rewards and mining receipts received without consideration are taxable as income from other sources at slab rates at fair market value on the date of receipt. That value then becomes your cost of acquisition for the eventual sale under 115BBH. So a staking reward can be taxed twice over its life — once on receipt at slab, once on appreciation at 30%.
• •VDAs received as gifts are taxable under Section 56(2)(x) if the aggregate fair market value exceeds ₹50,000 in a year, unless received from a relative as defined in the Act or on occasions specified there.
• •Foreign exchange holdings may additionally attract Schedule FA (Foreign Assets) disclosure. Non-disclosure of foreign assets carries penalties under the Black Money Act, which are far more severe than ordinary income tax penalties.

The 2026 shift: mandatory intermediary reporting

The most important change for FY 2026-27 is the introduction of a prescribed reporting obligation on crypto-asset service providers — exchanges, wallet providers and intermediaries must furnish periodic statements of transactions carried out by users, in a format aligned with the OECD's Crypto-Asset Reporting Framework. India has also committed to automatic exchange of crypto-asset information with partner jurisdictions.

In practice this means three things for a retail holder:

1. Transactions on offshore exchanges will increasingly be reported back to Indian authorities through information-exchange channels.

2. Mismatches between your ITR and intermediary statements will be flagged systemically, much as securities transactions are today.

3. Separately, the Finance Act, 2025 brought undisclosed VDA holdings within the definition of undisclosed income for block assessment in search and requisition cases — a materially higher consequence than a simple under-reporting penalty.

Worked example

Rohan, a salaried professional in the 30% bracket, has the following FY 2025-26 VDA activity:

His VDA tax: 30% of ₹2,50,000 = ₹75,000, plus 4% cess = ₹78,000. The ₹1,80,000 loss on Token B is dead — it cannot reduce the Token A gain, cannot offset his salary, and cannot be carried forward. The ₹40,000 staking reward is added to his total income and taxed at his slab rate. Exchange TDS of 1% on gross sale consideration of ₹7,70,000 — ₹7,700 — appears in his 26AS and is adjusted against his liability, leaving roughly ₹70,300 payable.

Note that advance tax applies. Because VDA gains are not subject to meaningful TDS, a large realised gain in Q3 or Q4 can trigger interest under Sections 234B and 234C if advance tax instalments are missed.

Practical compliance checklist

• •Download full transaction statements from every exchange you used, including closed accounts, before 31 March each year.
• •Reconcile exchange statements against AIS and Form 26AS for 194S entries before filing.
• •Maintain a wallet-level cost register — date, quantity, INR cost, counterparty — since exchanges do not track assets moved to self-custody.
• •For P2P purchases, confirm you discharged your 194S obligation via Form 26QE within 30 days of the end of the month of deduction.
• •If you missed reporting in an earlier year, the updated return under Section 139(8A) now permits filing up to 48 months from the end of the relevant assessment year, with escalating additional tax. Voluntary correction is materially cheaper than a department-initiated proceeding.

E-Square Tip: Because VDA losses cannot be set off or carried forward, the year-end tax-loss harvesting discipline that works for equity portfolios actively *hurts* here — selling a losing token in March gives you zero tax benefit and crystallises a real loss. Size your VDA exposure as speculative capital you can fully write off, keep it well under 5% of net worth, and never assume crypto gains can be sheltered by losses elsewhere in your portfolio.