Strict Rules for Crypto & VDAs Under ITA 2025#
Cementing the Crypto Crackdown#
When the government first introduced the 30% tax on Virtual Digital Assets (VDAs) a few years ago, the crypto community hoped it was a temporary, reactionary measure that would be softened in the new tax code.
The Income Tax Act, 2025 shatters those hopes. The new Act not only retains the harsh taxation structure but integrates it deeply into the core tax assessment framework, making evasion nearly impossible.
The Core Framework for VDAs#
Under the new Act, trading in Bitcoin, Ethereum, NFTs, and other VDAs is governed by strict, non-negotiable parameters:
1. The Flat 30% Tax#
Any income arising from the transfer of a VDA will be taxed at a flat rate of 30% (plus applicable surcharge and 4% cess).
- It does not matter if your total income is below the basic exemption limit; the 30% tax applies to the very first rupee of crypto profit.
- It does not matter if you hold the crypto for 5 minutes or 5 years; there is no concept of Long-Term vs. Short-Term Capital Gains for VDAs.
2. The Absolute "No Set-Off" Rule#
This is the harshest provision. The ITA 2025 clearly states:
- No inter-asset set-off: If you make a ₹1 Lakh profit in Bitcoin and a ₹80,000 loss in Ethereum, you cannot set off the loss. You must pay 30% tax on the full ₹1 Lakh profit. The ₹80,000 loss is completely ignored.
- No carry forward: You cannot carry forward crypto losses to subsequent financial years.
- No deductions: You cannot claim any expenses (like blockchain gas fees, exchange trading fees, or internet costs) against your crypto gains. The only deduction allowed is the actual Cost of Acquisition.
3. The 1% Tracking TDS#
To ensure no trade goes undocumented, Section 194S (now renumbered in the 100-series forms) mandates a 1% TDS on the entire transaction value every time you sell a crypto asset. If you swap Bitcoin for Ethereum (Crypto-to-Crypto), 1% TDS applies to both sides of the trade. The CBDT’s new RCASP reporting framework ensures that domestic exchanges automatically deduct this and link it to your Form 150 (formerly 26AS).
The Offshore Trap#
Many traders migrated to offshore, unhosted wallets (like MetaMask or Ledger) or foreign exchanges to avoid the 1% TDS.
The ITA 2025 empowers the tax department to actively utilize data gathered through the OECD's Global Crypto-Asset Reporting Framework (CARF). If an Indian resident is found trading on a foreign exchange without declaring the 30% tax in India, they will face prosecution under the Black Money (Undisclosed Foreign Income and Assets) Act, which carries massive penalties and potential imprisonment.
Trading crypto in India in 2026 requires careful, automated transaction bookkeeping to survive a tax audit.