Income Tax on Cryptocurrency in India: How Virtual Digital Assets Are Taxed in AY 2026-27

Why Crypto Has Its Own Tax Rules in India

Since the Union Budget 2022, India has a separate, standalone tax framework for cryptocurrency and other virtual digital assets (VDAs). Unlike your salary, mutual fund gains, or fixed deposit interest, crypto income does not flow through the normal slab-based system. It sits in its own box with its own rules — and those rules are deliberately strict.

If you bought, sold, traded, staked, or received any form of crypto or NFT during FY 2025-26, you need to understand exactly how this income is taxed before filing your ITR.

What Counts as a Virtual Digital Asset (VDA)

Section 2(47A) of the Income Tax Act defines a VDA broadly. It includes:

• Cryptocurrencies — Bitcoin, Ethereum, Solana, Polygon, and all other tokens
• NFTs — non-fungible tokens of any kind
• Any other digital asset notified by the government

Importantly, the definition excludes gift cards, vouchers, and Central Bank Digital Currency (CBDC), which is the RBI's digital rupee. So if you use UPI or the e-Rupee, those transactions are not VDA transfers.

The 30% Flat Tax Under Section 115BBH

This is the core rule. Any income from the transfer of a VDA is taxed at a flat 30% — regardless of your income slab, holding period, or the type of VDA.

There are three critical restrictions:

1. No deduction for expenses. You cannot deduct trading fees, platform commissions, gas fees, internet costs, or any other expense against your crypto income. The only deduction allowed is the cost of acquisition — what you originally paid to buy the asset.

2. No set-off of losses. If you sell Bitcoin at a loss and Ethereum at a profit, you cannot offset the Bitcoin loss against the Ethereum gain. Each profitable transfer is taxed independently at 30%.

3. No carry-forward. Crypto losses cannot be carried forward to future years. They are simply gone.

This makes VDA taxation harsher than almost any other asset class in India, including short-term equity trades (which are taxed at 20% and allow loss set-off within the same category).

How the Tax Is Calculated

The formula is straightforward:

Tax = 30% x (Sale Price - Cost of Acquisition)

Plus 4% health and education cess on the tax amount.

Example: You bought 0.5 ETH for Rs 80,000 in October 2025 and sold it for Rs 1,40,000 in February 2026.

No other deductions, exemptions, or rebates apply — not even the Section 87A rebate that makes income up to Rs 12 lakh tax-free under the new tax regime. Section 115BBH operates outside the slab system entirely.

1% TDS Under Section 194S

Every time a VDA is transferred, the buyer (or the exchange facilitating the transfer) must deduct TDS at 1% of the transaction value.

Who Deducts TDS

• On exchanges: The platform (WazirX, CoinDCX, CoinSwitch, etc.) handles TDS deduction automatically. You will see it reflected in your transaction history and Form 26AS.
• Peer-to-peer trades: The buyer is responsible for deducting and depositing the 1% TDS.

Threshold Limits

If your total VDA purchases from a single seller exceed the applicable threshold during the financial year, TDS applies on the entire amount from the first rupee.

Claiming TDS Credit

The 1% TDS deducted on your crypto sales is not a final tax. It is an advance payment against your actual tax liability. When you file your ITR, you claim credit for all TDS deducted (visible in your Form 26AS or AIS) against the 30% tax computed under Section 115BBH.

If your TDS exceeds your actual tax liability — for instance, if you sold at a loss or your net gains are small — the excess TDS is refunded to you. This is a common scenario: the 1% TDS is on the sale value, but the 30% tax is on the gain.

Example: You sell crypto worth Rs 5,00,000 that you bought for Rs 4,80,000.

If you had sold at a loss, the entire Rs 5,000 TDS would be refundable.

How Different Crypto Activities Are Taxed

Not all crypto income comes from simple buy-and-sell trades. Here is how the tax treatment works for common scenarios.

Trading (Buy and Sell)

Straightforward application of Section 115BBH. Gain = sale price minus cost of acquisition. Taxed at 30%.

For determining cost when you have bought the same token multiple times, use the FIFO method (first in, first out) — the same approach used for mutual fund redemptions. The tokens you bought earliest are treated as sold first.

Example: You bought 1 ETH at Rs 1,50,000 in April 2025, another 1 ETH at Rs 2,00,000 in September 2025, and sold 1 ETH at Rs 2,20,000 in January 2026. Under FIFO, the sold ETH is the one bought at Rs 1,50,000. Your taxable gain is Rs 70,000, not Rs 20,000.

Staking Rewards

If you stake crypto and receive rewards (additional tokens), the tax treatment has two layers:

1. On receipt: The fair market value of the staking rewards on the date you receive them is taxable as income from other sources. This is taxed at your normal slab rate, not the flat 30%.
2. On sale: When you later sell the staking rewards, the 30% flat tax applies. Your cost of acquisition is the fair market value on the date you received the rewards.

Airdrops

Tokens received via airdrops are treated similarly to gifts. If the aggregate value of all VDA gifts (including airdrops) received during the year exceeds Rs 50,000, the entire amount is taxable as income from other sources at your normal slab rate. When you eventually sell the airdropped tokens, the 30% tax applies on the gain above the value at which they were initially taxed.

Crypto-to-Crypto Swaps

Swapping one cryptocurrency for another — for instance, exchanging ETH for SOL — is a taxable event. You are considered to have sold the first token at its market value on the date of the swap. The 30% tax applies on the gain.

Many traders overlook this, assuming that only crypto-to-INR conversions trigger tax. That is not the case.

Mining

Crypto earned through mining is treated as business income or income from other sources, depending on the scale. When mined tokens are later sold, Section 115BBH applies.

How to Report Crypto Income in Your ITR

Which ITR Form

If your only other income is salary, you would typically file ITR-2. Crypto income from VDA transfers is reported under Schedule VDA, which is available in ITR-2, ITR-3, and ITR-4.

ITR-1 does not have Schedule VDA. If you have crypto income and are currently filing ITR-1, you need to switch to ITR-2. Read our guide on ITR-1 vs ITR-2 to understand the differences.

Schedule VDA Details

For each VDA transfer during the year, you need to report:

• Date of transfer
• Date of acquisition
• Head under which the income is reported
• Cost of acquisition
• Sale consideration
• Net gain or loss

If you used multiple exchanges, you need to consolidate transactions from all of them. Most Indian exchanges provide a tax report or statement that you can download, which has this data in a structured format.

Checking Your AIS for Crypto Transactions

The Income Tax Department receives crypto transaction data directly from exchanges. This data appears in your Annual Information Statement (AIS). Before filing, cross-check your AIS against your own records to make sure nothing is missing or mismatched. Discrepancies between your ITR and the data the department already has are a common trigger for notices.

Common Mistakes to Avoid

Not reporting small or losing trades. Even if you sold crypto at a loss, the transaction must be reported. The department already has the data from exchanges. Not reporting a loss-making trade does not save you tax (the loss cannot be set off anyway) and creates a compliance gap.

Ignoring crypto-to-crypto swaps. Every swap is a taxable transfer. If you actively trade across multiple tokens, each swap generates a reportable event.

Using the wrong cost basis. Always use the FIFO method. Using average cost or last-in-first-out will give you incorrect gain calculations.

Missing the advance tax obligation. If your total crypto tax liability for the year exceeds Rs 10,000, you are required to pay advance tax in quarterly instalments. Failure to do so attracts interest under Sections 234B and 234C.

Not reconciling TDS. Check your Form 26AS and AIS to ensure all 1% TDS deductions by exchanges are reflected. Unclaimed TDS is money left on the table.

The Bottom Line

Crypto taxation in India is intentionally designed to discourage speculative trading through its flat 30% rate, no loss set-off, and no expense deductions. But the rules are clear and well-defined — if you follow them, compliance is straightforward.

Track every transaction, use FIFO for cost calculations, report all trades (including swaps and loss-making ones) in Schedule VDA, and reconcile your TDS before filing. If you traded on Indian exchanges, most of the heavy lifting is already done — 49Tax can pull your crypto TDS data from Form 26AS and help you report it accurately in your ITR.