Cryptocurrency Tax in India: Section 115BBH & ITR Filing Guide

Key Takeaways

• Under Section 115BBH of the Income Tax Act, profits from crypto trading, exchanges, and payments are taxed at 30% plus a 4% cess.

• A 1% TDS applies to transactions exceeding ₹10,000.

• Unlike stocks, crypto losses cannot be used to offset gains from other assets or income sources.

• From FY 2025-26, individuals and exchanges must disclose crypto transactions in Schedule VDA of their income tax filings.

Cryptocurrencies are a unique kind of digital currency with which you can trade without the control of a centralising authority. Since their prices fluctuate, they are becoming popular trading avenues. However, the Government of India introduced the Finance Act 2022 with a framework to treat cryptocurrencies as Virtual Digital Assets (VDAs). 

This Act makes income from the transfer of VDAs taxable as per the applicable rules. If you are planning to invest in crypto, understand the taxes on crypto, and set your budget accordingly. 

To explain it in easy terms, cryptocurrencies are digital money that operate without intermediaries, like banks, financial institutions, or central authorities. With the growing popularity of digitalisation, the trading of cryptocurrencies has become popular in recent years. Today, there are more than 10,000 digital currencies, such as Bitcoin, Ethereum, Ripple, Matic, etc.

The Income Tax Act classifies crypto and NFTs as Virtual Digital Assets (VDAs) under Section 2(47A). VDAs include all crypto assets like cryptocurrencies, NFTs, and tokens but exclude gift cards and vouchers. Hence, you are liable to pay tax on bitcoin gains. 

As per the Finance Act of 2022 and other related provisions, here is the tax structure applicable  to the transfer of cryptocurrencies:

There have been myriad changes in the laws regarding cryptocurrency taxes over the years. Take a look: 

When filing your returns, you can only claim tax deductions for the cost of acquisition from the sale of cryptocurrencies. Transaction charges and other related costs don’t qualify for deductions. Also, remember that you cannot offset losses from VDAs to gains for any other income or losses from one VDA to gains.

Crypto volatility impacts taxes by changing the gains or losses investors report. Taxes are based on the difference between the purchase and sale prices. In volatile markets, investors may face higher or lower taxable gains. 

Even with fluctuating prices, taxes apply only to realised gains (when you sell or exchange crypto), not unrealised changes. You must keep accurate records to report these fluctuations correctly. 

Here are the details to help you understand when you need to pay tax on crypto transactions:

The process of reporting taxes varies based on the method you are using. However, here’s a step-by-step guide on how to report crypto to the Income Tax Department easily and quickly:

1. Open a cryptocurrency taxes calculator and sign in to connect.

2. Download the tax report from there.

3. Now, log in to the income tax portal.

4. Report your capital gains in Schedule VDA.

5. Proceed to verification and complete the report.

Here are common mistakes to avoid when paying crypto taxes:

• Failing to report all crypto transactions like trades, sales, and moving it into a digital wallet.

• Not understanding the differences between long-term and short-term crypto gains.

• Not keeping detailed records of each transaction, including dates and amounts

• Ignoring crypto tax laws.

• Ignoring losses that can offset gains (tax loss harvesting).

• Overlooking the 1% TDS on crypto transactions exceeding ₹10,000.

• Underestimating tax liabilities by not considering fees and transaction costs.

• Not staying updated with changing tax regulations and requirements.

Many countries treat cryptocurrencies as property, taxing gains from their sale or exchange as capital gains. Earnings from activities like mining, staking, or receiving crypto as payment are often considered taxable income. Tax rates on crypto gains can vary depending on the capital gain. 

Read More: How to Invest in Cryptocurrency for Beginners: A Step-by-Step Guide

1. How is 1% TDS on cryptocurrency applied?

In India, a 1% TDS is deducted on every cryptocurrency transfer exceeding the prescribed threshold. The deduction is made by exchanges or buyers at the time of sale, including P2P transactions, regardless of profit or loss.

2. Can I claim losses from crypto transactions?

In India, losses from cryptocurrency transactions cannot be claimed, set off, or carried forward against any other income. Under Section 115BBH, gains are taxed at 30%, and only the cost of acquisition is allowed as a deduction.

3. How are airdrops and staking rewards taxed?

In India, airdrops and staking rewards are taxed as income at their fair market value when received. Any later sale of these assets attracts a flat 30% tax on the gains calculated over that value.

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