Until a few years ago, buying Bitcoin or an NFT felt like walking into a wild new world — thrilling but uncertain. There was no clarity on whether crypto profits were even taxable. Everyone was earning, trading, or mining, but no one was sure how the Income Tax Department viewed these digital assets.
That confusion ended with the Finance Act, 2022. For the first time, the government officially recognized digital assets under Indian tax law by inserting Section 2(47A) in the Income Tax Act, 1961. This was more than just an amendment — it was a signal that India was ready to regulate & tax the digital economy.
What Exactly Is Section 2(47A)?
In simple terms, this section defines what a Virtual Digital Asset (VDA) is. It includes any information, code, token, or number that:
- Exists digitally,
- Is generated through cryptographic means, and
- Can be transferred, stored, or traded electronically.
It doesn’t matter if it’s a meme coin, a famous NFT, or a metaverse token — if it holds value & can be exchanged, it likely qualifies as a VDA under this section.
Essentially, Section 2(47A) sets the boundaries for what India recognizes as a “digital asset.” It’s the legal foundation that all crypto taxation now stands on.
Why the Government Introduced This Section
Before this law, there was no way to track or tax gains from digital trades. Investors booked profits worth lakhs and even crores, yet the law had no category for “crypto income.”
To fix this, the government created two things together:
- A definition of Virtual Digital Assets (through Section 2(47A)), and
- A tax rule for them (through Section 115BBH).
This ensured digital assets could be taxed just like any other form of income — only this time, under a special regime meant exclusively for VDAs.
It also brought India in line with global trends. Countries like the U.S. & the U.K. already had digital asset frameworks, and India’s step was long overdue.
Assets That Fall Under Section 2(47A)
Let’s make it simple — here’s what’s covered:
- Cryptocurrencies like Bitcoin, Ethereum, Ripple, or Dogecoin.
- NFTs (Non-Fungible Tokens) — digital certificates of ownership for art, music, or collectibles.
- Utility or governance tokens used in blockchain projects.
- Gaming tokens or any cryptographic digital item with tradeable value.
In short, if you can store it digitally, trade it, & someone is willing to pay for it, it’s probably a VDA.
Also Read: Taxation on Crypto & Virtual Digital Assets Explained
What’s Not a Virtual Digital Asset
Not every digital item is taxable under this rule. The government made sure to exclude:
- Regular currencies (Indian or foreign).
- Gift cards or vouchers used only for buying goods or services."
- Loyalty points or in-app rewards that don’t hold transferable value.
- Any digital representation of real-world assets, like stocks or bonds traded on SEBI-regulated platforms.
So, your Amazon voucher or airline miles? Not taxable as VDA income.
How Are VDAs Taxed Under Indian Law
Once the definition was in place, the government brought in Section 115BBH, which introduced a flat 30% tax rate on income from Virtual Digital Assets.
Here’s what it means:
- 30% tax on profits from the sale or transfer of VDAs.
- No deductions allowed — you can’t claim expenses like internet fees or electricity for mining.
- Losses from one crypto cannot be set off against profits from another.
- TDS (1%) applies under Section 194S on every crypto transfer above ₹10,000 (₹50,000 in some cases).
This means if you bought Bitcoin at ₹2 lakh & sold it at ₹3 lakh, your ₹1 lakh gain gets taxed at 30% — simple, but strict.
Example: How It Works
Imagine Rohan bought Ethereum worth ₹2 lakh and later sold it for ₹2.8 lakh. His profit is ₹80,000. Under the VDA rules, he’ll pay 30% tax on this amount, i.e., ₹24,000.
Now, if he lost ₹50,000 on another coin like Solana, he can’t use that loss to reduce his tax burden. The law treats each transaction independently — that’s one reason why investors must keep detailed records.
Even NFT creators face similar treatment — when they sell their tokens, the income they receive (even in crypto) is taxed at 30%.
Why Section 2(47A) Matters for the Crypto Community
This section did more than define digital assets — it brought legitimacy to an otherwise unregulated space. For investors, it means their crypto holdings are now recognized, but also monitored. For the government, it created a paper trail through TDS and reporting obligations.
The broader impact? More accountability, fewer loopholes, & a step toward formalizing the digital asset ecosystem in India.
Also Read: TDS on Virtual Digital Assets (Crypto, NFTs & More)
Common Misunderstandings About VDA Taxation
- A lot of people think that taxation applies only when they convert crypto to rupees. That’s not true. Even if you trade one crypto for another — say Bitcoin for Ethereum — that’s still a transfer & taxable.
- Another misconception: gifts of VDAs.
- If you gift crypto or an NFT, it can still be taxed in the hands of the recipient under Section 56(2)(x), depending on its value.
So, whether you’re a casual trader or a full-time investor, it’s important to understand that every move counts under this framework.
Real-Life Impact – The NFT Creator’s View
Take the example of Meera, a digital artist who sold her NFT artwork for ₹1.2 lakh worth of crypto. Even though she didn’t receive cash, her income is taxable. The law considers the fair market value of that crypto on the date of receipt as her income.
This ensures that even digital barter — NFTs exchanged for tokens — falls under the taxation net.
Challenges Ahead
Of course, implementing Section 2(47A) isn’t without its challenges.
- Valuation: Crypto prices fluctuate every minute, making fair valuation tricky."
- Cross-border taxation: Many Indian traders use international exchanges. Tracking these remains complex.
- Legal ambiguity: While taxed, cryptocurrencies still aren’t recognized as “legal tender.”
These grey areas mean the framework may evolve further. The government is expected to refine these rules as digital assets mature.
India’s Stance vs the World
Globally, the approach to taxing crypto varies. The U.S. treats it as property, the U.K. as capital assets, and Singapore exempts long-term gains in some cases.
India’s move, through Section 2(47A) & Section 115BBH, is stricter — high tax rates, no offsets, and mandatory TDS.
But it also ensures control, traceability, and eventually, better investor protection.
Also Read: The Rule That Keeps Charitable Trusts Accountable to the Tax Department
The Future of VDAs in India
With the introduction of the Digital Rupee (CBDC) & increasing Web3 innovation, the government’s next challenge is striking a balance — promoting innovation while preventing misuse.
Section 2(47A) is just the beginning. It’s India’s first real step toward integrating digital assets into its formal economy. Future amendments might simplify tax rates or even introduce exemptions for small investors, similar to capital gains relief in other countries.
Final Thoughts
Section 2(47A) of the Income Tax Act changed how India views digital money. It gave clarity where there was chaos, but it also introduced accountability. For traders, NFT creators, and investors, the message is simple — keep records, report income honestly, and plan taxes wisely. The crypto era in India isn’t ending — it’s just becoming more structured.
If you’re unsure how to declare your crypto or NFT income, our CA experts at Callmyca.com can help you navigate compliance easily. From filing returns to understanding your TDS, we’ll make sure your digital journey stays 100% tax-proof.
