Crypto Taxation India
Virtual digital assets including cryptocurrencies are taxed at a flat thirty percent rate under Section 115BBH of the Income Tax Act, with a one-percent TDS on transfers above specified thresholds, no deduction allowed for losses against other income, and no set-off between different VDAs.
India introduced a comprehensive and stringent tax framework for virtual digital assets (VDAs) through the Finance Act 2022, effective from the assessment year 2023-24. The provisions were designed to bring cryptocurrency transactions within the tax net while signalling the government's cautious stance on the asset class through the punitive tax structure.
Section 115BBH imposes tax at the flat rate of thirty percent on income from the transfer of any VDA, plus applicable surcharge and health and education cess. This rate applies regardless of the holding period — there is no distinction between short-term and long-term holding as exists for other capital assets. The effective tax rate for high-income individuals including surcharge and cess can exceed thirty-nine percent on VDA gains.
Virtual digital assets are defined broadly under Section 2(47A) to include any information, code, number, or token generated through cryptographic means or otherwise, providing a digital representation of value. This definition covers Bitcoin, Ethereum, and other cryptocurrencies, as well as non-fungible tokens (NFTs) and any other digital asset specified by the Central Government by notification. The definition is deliberately wide to prevent classification-based tax avoidance.
The loss set-off prohibition is the most punitive feature of the regime. Any loss arising from the transfer of one VDA cannot be set off against any income from any other source, including gains from a different VDA. This means a trader who made a profit on Bitcoin but a loss on Ethereum in the same year pays thirty percent tax on the Bitcoin profit without any relief for the Ethereum loss. Losses from VDA transfers also cannot be carried forward to future years.
Section 194S mandates one percent TDS on payments made on transfer of a VDA if the transaction value exceeds fifty thousand rupees per financial year for specified persons or ten thousand rupees otherwise. This TDS obligation falls on the person making the payment, which in practice means crypto exchanges must deduct and deposit TDS on behalf of their users. The TDS is creditable against final tax liability but creates interim cash flow implications for active traders dealing with multiple transactions throughout the year.