The rise of cryptocurrencies & Virtual Digital Assets (VDAs) in India has led to significant developments in the taxation landscape. To bring clarity & regulate tax on income from these digital assets, Section 115BBH of the Income Tax Act was introduced in the Finance Act 2022. This provision specifically deals with the taxation of income generated from Virtual Digital Assets such as cryptocurrencies & non-fungible tokens (NFTs).
What is Section 115BBH of the Income Tax Act?
Section 115BBH of the Income Tax Act imposes a flat 30% tax on income from Virtual Digital Assets (VDAs), irrespective of the amount or the taxpayer’s income slab. This section is applicable to both individuals & businesses earning gains from the transfer of such assets. It was a much-needed step to regulate the rapidly growing crypto market in India & ensure tax compliance.
One of the most striking features of section 115BBH of the Income Tax Act is that losses incurred in crypto cannot be offset against any income. This means that if you make a loss on one crypto trade, you cannot set it off against gains from another VDA or any other income source. This is a big difference compared to traditional capital gains, where set-offs are often permitted.
Key Highlights of Section 115BBH:
- A 30% tax is levied on gains from Virtual Digital Assets.
- No deduction (other than the cost of acquisition) is allowed for expenses or allowances.
- Losses cannot be carried forward or set off against any income.
- The tax applies whether the crypto income is under the head of Capital Gains or Other Sources."
Applicability of Section 115BBH
Section 115BBH applies to any person earning income from the transfer of Virtual Digital Assets, such as:
- Cryptocurrencies like Bitcoin, Ethereum, Dogecoin, etc.
- NFTs (Non-Fungible Tokens)
- Other digital assets notified by the government.
The tax applies to gains arising on or after April 1, 2022.
Tax Calculation under Section 115BBH of the Income Tax Act
Let's understand with a quick example:
- Mr. A buys Bitcoin for ₹1,00,000 & sells it for ₹1,50,000.
- The gain is ₹50,000.
- Under Section 115BBH of income tax act 1961, tax payable = ₹50,000 x 30% = ₹15,000 (plus cess & surcharge).
No other expenses, such as transaction fees, internet costs, or mining costs, can be deducted. Only the cost of acquisition is allowed.
Key Restrictions:
One of the toughest rules under section 115BBH of the Income Tax Act, under which head is the restriction on setting off losses. Losses incurred in crypto cannot be offset against any income, not even from other cryptocurrencies or digital assets. So, if you profit from one coin & lose in another, you still have to pay tax on the profitable one without any relief.
This has been mentioned to discourage speculative trading & bring tax parity."
Declaration & Compliance
The income from VDAs must be disclosed in the Income Tax Return (ITR) under the appropriate head. Non-reporting or wrong reporting may lead to penalties & notices under the Income Tax Act.
You can also check for updates & download section 115bbh of the Income Tax Act PDF from reliable sources or refer to the bare act for exact legal wording.
Final Takeaway:
If you're dealing in cryptocurrencies or digital assets, compliance with Section 115BBH of the Income Tax Act is crucial to avoid penalties. Need help with crypto tax filing or have queries on income tax notices? Connect with experts at Callmyca.com—where India's top CAs make taxes simple, stress-free, & transparent. Click here to file your crypto taxes with confidence!
