VDA : How India Taxes Virtual Digital Assets (Like Crypto, NFTs & More)

Over the past few years, cryptocurrencies & NFTs have gone from being a niche hobby to a mainstream investment option. But here’s the catch — the Income Tax Department now treats them very seriously under the law.

If you’ve ever traded Bitcoin, Ethereum, Dogecoin, or even sold an NFT, you might have wondered: “How are these profits taxed in India?”
That’s exactly what the VDA income tax section is all about.

What Is a Virtual Digital Asset (VDA)?

In 2022, the Indian government officially introduced the term Virtual Digital Asset (VDA) in the Income Tax Act, 1961.

A VDA covers:

• Cryptocurrencies like Bitcoin, Ethereum, Solana
• Non-fungible tokens (NFTs)
• Any digital representation of value that can be transferred, stored, or traded electronically

So, the next time you sell, gift, or exchange any of these — you are triggering a taxable event.

Which Section Covers VDA Taxation?

Gains from Virtual Digital Assets are taxed under Section 115BBH of the Income Tax Act, 1961.

Under this section, any income from transfer of VDAs is taxable at the rate of 30 %.
Yes, you read that right — a flat 30 % tax rate is applied on VDA income, irrespective of your income-tax slab.

To make it clear, VDAs are taxed under the head “Capital Gains” in accordance with Section 45 of the Income Tax Act.

Understanding the 30 % Tax Rule

The rule is simple but strict:
👉 Gains from Virtual Digital Assets are subject to a 30 % tax, just like winnings from lotteries or game shows.

That means there’s no special deduction allowed (except for the cost of acquisition).
So, if you bought Bitcoin for ₹1 lakh & sold it for ₹1.5 lakh, the ₹50,000 profit is fully taxable at 30 %.

You can’t deduct internet fees, trading charges, or even losses from other crypto trades to offset it.

In short: The tax applies to every profitable trade — flat 30 %.

Also Read: Taxation of Capital Gains

Example – How It Works in Real Life

Let’s say you bought 1 ETH at ₹1,00,000 & sold it later at ₹1,80,000.
Your gain = ₹80,000.

Tax = 30 % of ₹80,000 = ₹24,000 plus 4 % cess (₹960).
So total tax payable = ₹24,960.

No deductions. No adjustments.
Just a straightforward 30 % tax on profit.

That’s how the VDA income tax section keeps it clean and uniform across all investors.

What About Losses?

Here’s the tough part — you cannot set off or carry forward losses from VDA trading.

Let’s say you made a profit of ₹50,000 on Bitcoin but lost ₹30,000 on Dogecoin — you still pay 30 % on ₹50,000.
The loss can’t be adjusted anywhere, even against other crypto gains.

This rule was introduced deliberately to discourage excessive speculative trading in digital assets.

Are VDAs Short-Term or Long-Term Capital Gains?

VDAs don’t follow the regular short-term or long-term concept like shares or property."
The flat 30 % tax rate applies to all gains — whether you hold it for a day or a year.

The government didn’t differentiate between holding periods, mainly to simplify compliance & prevent loopholes.

TDS on VDA Transfers — The 1 % Rule

From July 1, 2022, another section came into play — Section 194S.
It mandates a 1 % TDS on every transfer of VDAs above certain thresholds.

So, when you sell crypto on an exchange, 1 % of the sale value is automatically deducted & deposited with the Income Tax Department as TDS.

You can later claim this TDS while filing your return, similar to how it works for salary or bank interest.

Also Read: Capital Gains on Joint Development Agreements

When Does the 1 % TDS Apply?

• For individuals (non-business users), if the total transaction value exceeds ₹50,000 in a year.
• For frequent traders or businesses, if the limit exceeds ₹10,000.

The exchange usually deducts & deposits the TDS on your behalf, but it’s still your responsibility to report it correctly while filing ITR.

No Exemptions, No Deductions, No Adjustments

Let’s be real — the VDA tax regime is one of the strictest.

• You cannot claim deductions under Section 80C or any other section against VDA income.
• Expenses like mining costs, exchange fees, or even transaction gas fees are not deductible.
• Only the cost of purchase (what you paid to acquire the asset) is allowed as a deduction.

That’s it. No other relief.

VDAs as Gifts — Yes, They’re Taxed Too

• If you gift crypto or NFTs to someone, that’s not an escape either.
• Under Section 56(2)(x), the recipient may have to pay tax if the fair market value exceeds ₹50,000 — unless the gift is from a relative or on specific occasions like marriage.
• So, even gifting Bitcoin isn’t completely tax-free in India.

How to Report VDA Income in Your ITR

Starting from AY 2023-24, the Income Tax Return forms include a dedicated schedule for Virtual Digital Assets.

You need to mention:

• Type of asset (crypto, NFT, etc.)
• Date of acquisition & sale
• Purchase cost & sale value
• TDS deducted under Section 194S
• Tax paid under Section 115BBH

Make sure the details match your exchange statements & Form 26AS.

What Happens If You Don’t Report It?

This is serious.

If you skip reporting VDA income, the tax department can issue notices under Section 148 for income-escape cases. Since every exchange already deducts TDS @ 1 %, the government knows your trading activity.

Under-reporting or concealment may attract penalties up to 200 % of the tax amount, plus interest.
In short, hiding crypto income can be very costly.

Also Read: New Manufacturing Companies Tax Rate at 15%

How NRIs Are Taxed on VDA Income

• Non-Resident Indians (NRIs) are also covered under Section 115BBH.
• If they earn income from transfer of VDAs in India or from Indian exchanges, that income is taxable at 30 % plus surcharge & cess.
• Double-taxation relief (DTAA) may apply in some countries, but only if the foreign tax laws recognize crypto income & you disclose it properly.

Are Airdrops and Mining Rewards Taxable Too?

Yes.

• Airdrops or free token distributions are treated as income in the year received — taxable under “Income from Other Sources.”
• When those airdropped tokens are later sold, the sale value minus the original taxed value becomes capital gain, again taxed under Section 115BBH.
• Similarly, crypto mining rewards are taxable at the time of generation, & when sold, the profit portion is taxed again.

So, miners and DeFi users aren’t exempt either.

Quick Recap of VDA Tax Rules

Why the Government Took This Step

Let’s be honest — crypto investments exploded faster than regulations could keep up. Before 2022, there was no clear law on how to tax digital assets. People made massive profits, and the government saw an urgent need to formalize it.
By introducing Section 115BBH & Section 194S, they made sure every crypto or NFT trade is traceable and taxable."

It’s strict, yes — but it brings clarity for everyone.

Compliance Checklist for VDA Investors

Before the financial year ends, make sure you’ve:

1. Downloaded all trade summaries from your crypto exchanges.
2. Checked if 1 % TDS has been deducted correctly.
3. Calculated your 30 % tax under Section 115BBH.
4. Declared the income in your ITR under “Capital Gains.”
5. Paid any balance tax before 31 July to avoid penalties.

Being compliant is way cheaper than ignoring these rules.

Also Read: Taxation Rules for Non-Residents on Dividends, Interest, Royalties & Fees

Final Words — Stay Smart, Stay Compliant

Whether you’re trading crypto casually or holding NFTs long-term, you can’t escape the VDA income tax section anymore. The message is clear — any income from transfer of VDAs is taxable at the rate of 30 %. They’re taxed under Capital Gains (Section 45) with no deductions, no loss adjustment, and 1 % TDS under Section 194S.

It may sound tough, but it’s better than being in the dark. Keep your records clean, report every transaction, & pay your taxes right the first time.

Need Help Calculating Crypto Taxes?

At CallMyCA.com, our CA experts help crypto traders & investors file their ITRs correctly under the new VDA tax sections.
Whether you’ve traded on Indian or international exchanges, we’ll calculate your 30 % tax, adjust your TDS, and help you claim every eligible refund.