Capital gains on crypto and VDA in FY 2025-26: 30% flat, no loss set-off, and the 194S TDS you may have missed
Income from virtual digital assets is taxed at a flat 30% plus 4% cess under s.115BBH for FY 2025-26 — no long/short-term split, no deduction beyond cost, no set-off against other income, and 1% TDS under s.194S. Worked example and AIS reconciliation inside.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Income from the transfer of a virtual digital asset (VDA) is taxed at a flat 30% plus 4% health & education cess under s.115BBH of the Income-tax Act, 1961 — with no long-term/short-term split, no deduction beyond the cost of acquisition, and no set-off of VDA losses against any other income. The rules, inserted by the Finance Act 2022, apply unchanged to every VDA transfer in FY 2025-26 (AY 2026-27). Most crypto sellers understate the real bite because they assume capital-gains mechanics — holding periods, indexation, loss carry-forward — apply to VDA. They do not.
Staleness alert: Posts that describe crypto as "short-term capital gains at your slab rate" or "long-term at 20% after 36 months" are describing the pre-1 April 2022 uncertainty. For every transfer from AY 2023-24 onward, the rate is a flat 30% + 4% cess, independent of holding period and of your total income. If a source does not mention s.115BBH, treat its numbers as outdated.
What is a virtual digital asset: s.2(47A)
Section 2(47A) defines a VDA as any information, code, number, or token generated through cryptographic means or otherwise that provides a digital representation of value and can be transferred, stored, or traded electronically — with cryptocurrencies, NFTs, and most tokens covered unless the Central Government notifies an exclusion. Physical gold, listed equity shares, and mutual fund units are not VDAs; they stay under s.48 / s.112 / s.112A. The asset class decides the section, and the section decides everything about the tax.
The 30% charge under s.115BBH
Section 115BBH charges 30% on income from the transfer of a VDA, plus 4% cess, for AY 2023-24 onward. Four structural features do the real work:
- No holding-period split. There is no "long-term" and no "short-term" for VDA. A coin held one day and one held five years are taxed identically at 30%. The 12.5% LTCG rate and the 20% STCG rate for listed equity never touch VDA.
- Only the cost of acquisition is deductible (s.115BBH(2)(a)). Transaction fees, gas fees, wallet charges, exchange commissions, and mining electricity are all non-deductible. Your taxable gain is sale consideration minus cost of acquisition — nothing else.
- No set-off against other income (s.115BBH(2)(b)). A ₹1 lakh VDA loss cannot reduce your salary, rental, or business income. The loss is quarantined inside the VDA regime.
- No carry-forward. VDA losses do not carry forward to any future year under s.74. They are extinguished in the year they arise.
A point of professional divergence: netting within the VDA class
VERIFY WITH CA before filing: whether losses from one VDA can be set off against gains from another VDA in the same year is unsettled. Section 115BBH(2)(b) bars set-off against income "computed under any other provision of this Act" — some assessing officers read this strictly and reject even intra-VDA netting; the ITR's Schedule VDA and many practitioners compute a net figure for the year. Until the position is settled, do not assume intra-VDA netting is safe — a CA should confirm the current treatment before you file a net number. This single point routinely decides whether the year's VDA bill is correct.
Section 194S: the 1% TDS you may have missed
Section 194S, effective 1 July 2022, requires the payer to deduct 1% TDS on consideration for the transfer of a VDA to a resident, before crediting or paying.
In practice, on Indian exchanges the exchange deducts 1% at the point of crediting sale proceeds — you see it as a TDS line in 26AS. On peer-to-peer transfers with no exchange, the buyer is the deductor, and a P2P seller who received full consideration with no TDS is exposed if the buyer defaulted. CBDT Circular 13/2022 (22 June 2022) governs the operational mechanics.
How VDA trades appear in the AIS — and the mismatch to expect
Exchanges report VDA transactions to the department through the Statement of Financial Transactions (SFT) mechanism; the data surfaces in your Annual Information Statement (AIS) under a "Virtual Digital Assets" section. The AIS reports gross sale consideration — not your net gain. When you reconcile, the AIS figure will not match your net profit, and that is expected. What the department compares is whether the gain you declare ties to the gross proceeds reported. File both the gross consideration and the cost of acquisition transaction-by-transaction in Schedule VDA so the declared gain reconciles. A mismatch left unexplained can trigger a s.143(1) intimation.
Worked example: Priya trades ETH and DOGE
Persona: Priya, salaried resident individual, FY 2025-26 (AY 2026-27).
Facts:
- Sells Ethereum (ETH) bought earlier in the year — gain ₹3,00,000
- Sells Dogecoin (DOGE) in the same year — loss ₹1,00,000
- No other capital gains or losses
Step 1 — Compute VDA income. Cost of acquisition is the only deduction. Following the Schedule VDA / practitioner approach, the year's VDA transfers net to ₹3,00,000 − ₹1,00,000 = ₹2,00,000. (Per the divergence note above, confirm intra-VDA netting with a CA before filing.)
Step 2 — Tax at 30% + cess.
₹2,00,000 × 30% = ₹60,000, plus 4% cess = ₹62,400 total.
Step 3 — What cannot happen. The ₹1,00,000 DOGE loss cannot be set off against Priya's salary — s.115BBH(2)(b) bars set-off against income under any other provision. If she had no ETH gain, the ₹1,00,000 loss would be extinguished, not carried forward. And none of the ₹3,00,000 gain is sheltered by the ₹1,25,000 s.112A exemption or the basic exemption limit — VDA income is a separate flat-rate charge.
Reproduce the arithmetic in the Crypto VDA Tax Calculator.
What changed FY 2025-26: before/after diff
Nothing in this framework changed for FY 2025-26 — the FA 2022 rules are the rules in force. The "change" the department cares about this season is enforcement: SFT/AIS data from exchanges is now flowing to a large share of filers, and VDA gains that were historically under-declared are the ones the reconciliation flags.
Filing points
- ITR-2 / ITR-3 only. VDA income disqualifies ITR-1, even for small amounts.
- Transaction-level disclosure. Schedule VDA expects each transfer's acquisition date, transfer date, cost, and consideration — do not lump trades into a single line.
- TDS credit. The exchange's 1% TDS appears in 26AS and the AIS; claim it against the s.115BBH liability. Balance is payable as self-assessment tax before filing.
- Cost basis. For crypto received as salary, airdrops, or staking, the cost basis may be FMV in rupees on the date of receipt — an evolving area without settled CBDT guidance, so retain the exchange/wallet records and confirm the treatment with a CA.
See Also
Frequently Asked Questions
What is the tax rate on VDA gains in FY 2025-26?
Income from the transfer of a VDA is taxed at a flat 30% plus 4% health and education cess under s.115BBH — with no long-term/short-term split, no deduction beyond the cost of acquisition, and no set-off of VDA losses against any other income.
Can VDA losses be set off against salary or other income?
No. Section 115BBH does not allow set-off of VDA losses against any other income, including salary. Crypto losses can only be set off against crypto gains.
What is the definition of a VDA under the Income-tax Act?
A VDA is defined under section 2(47A) of the Income-tax Act 1961. It includes any digital asset generated through cryptographic means or similar technology, as notified by the Central Government.
Is there indexation benefit on long-term VDA gains?
No. There is no long-term or short-term split for VDA. The flat 30% rate applies regardless of holding period. Indexation does not apply.
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