P2P Crypto Trades and Foreign Exchanges: INR Conversion, RBI Rate and ITR Disclosure
31.2% applies to every P2P and foreign-exchange VDA sale — converted to INR at the trade-date RBI reference rate in Schedule VDA, with foreign-held VDAs disclosed in Schedule FA, and a FEMA angle on holding abroad that needs specialist review.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Every trade on a foreign exchange — Binance, Kraken, Coinbase, OKX — must be converted to INR at the RBI reference rate on the trade date and reported in Schedule VDA, and every VDA you hold abroad must be disclosed in Schedule FA of the ITR; on P2P, a sale is a s.115BBH transfer of the Income-tax Act, 1961 and a purchase simply fixes your cost at the agreed INR equivalent. Two errors dominate here: filing foreign-exchange P&L in USD as if it were INR, and omitting foreign VDA holdings from Schedule FA — the first distorts your gain, the second risks a Black Money Act penalty. There is also a FEMA angle on holding VDA abroad that no amount of ITR diligence resolves.
INR conversion: the one number that decides your gain
The taxable figure is the INR value of the consideration on the date of the transfer, not the date you check your portfolio and not the USD figure your exchange prints. Convert each foreign-currency trade at the RBI reference rate on the trade date — the common professional basis for converting foreign-exchange crypto transactions into the ITR. on the operative rule reference for your assessment year.
The rate matters. A USD-1,000 trade converts differently across a volatile week; using the trade-date rate is both the professional rule and the number the department's systems can verify against exchange data.
P2P: sale, purchase, and the TDS asymmetry
A P2P sale is a VDA transfer like any other — s.115BBH applies at 30% + cess on the gain, and if the total consideration in the year crosses the s.194S threshold, the buyer is supposed to deduct 1% TDS. In practice most P2P buyers do not, which means the seller owes the full 31.2% himself, as advance tax.
A P2P purchase is the reverse: your cost of acquisition is the agreed INR price you paid — that becomes the basis against a later sale. Keep the payment trail (UPI/bank transfer matching the seller and the amount), because an undocumented P2P cost basis is routinely challenged.
The FEMA angle you cannot file your way out of
Purchasing VDA through a foreign exchange and holding it abroad raises FEMA (Foreign Exchange Management Act, 1999) compliance questions that are separate from income tax:
- LRS limits: remitting money abroad to buy VDA must be reconciled against the RBI liberalised remittance scheme (LRS) annual limit and the specified-purpose restrictions. [VERIFY with a FEMA specialist before publish] — treating a foreign VDA purchase as an ordinary investment remittance has been questioned where the underlying is a VDA.
- Holding structure: a resident holding VDA in a foreign wallet or exchange is a foreign asset for disclosure, but the permissibility of the holding itself is governed by FEMA, not the IT Act.
- Overseas spending: using a foreign VDA abroad has its own compliance path.
This is a specialist area. The ITR treatment (report the sale, disclose the holding) is necessary but not sufficient — if you hold VDA on a foreign exchange, have the FEMA position reviewed independently. VERIFY WITH A FEMA SPECIALIST before publish.
ITR disclosure: Schedule VDA plus Schedule FA
Schedule FA is a disclosure, not a tax — but omitting a foreign VDA holding when you are a resident is penalised under s.43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (penalty equal to 300% of the tax on the value of the undisclosed foreign asset, and a separate ₹1,00,000 penalty under s.41 for failure to furnish the return of foreign income) — plus prosecution exposure under s.50. A VDA sitting in a foreign exchange on 31 March is a foreign asset; disclose it even if you did not trade it in the year.
Worked example: Kavya's Kraken ETH sale
Persona: Kavya, resident individual, holds ETH on Kraken (a US exchange). FY 2025-26.
Facts:
- Sells 0.4 ETH for USD 3,200 on 10 May 2025.
- RBI reference rate on 10 May 2025: ₹84 per USD (illustrative — use the actual rate).
- Original cost of the 0.4 ETH (converted at purchase): ₹1,90,000.
Step 1 — Convert consideration. USD 3,200 × ₹84 = ₹2,68,800.
Step 2 — Compute gain. ₹2,68,800 − ₹1,90,000 = ₹78,800.
Step 3 — Tax (s.115BBH). ₹78,800 × 30% = ₹23,640; cess 4% = ₹946 → ₹24,586.
Step 4 — Disclosures.
- Schedule VDA: 0.4 ETH, transfer on 10-05-2025, consideration ₹2,68,800, cost ₹1,90,000.
- Schedule FA: Kraken holding, country US, peak and closing balance in INR, even if she still holds ETH.
Step 5 — FEMA review. Because the ETH was bought with funds remitted to a foreign exchange, the FEMA/LRS position is a separate question for a FEMA specialist — the ITR does not resolve it.
Reproduce the arithmetic in the Crypto VDA Tax Calculator.
Changed FY 2025-26: No change in the conversion or disclosure rules themselves. What changed is enforcement: foreign-exchange SFT/airway-bill-type data and LRS remittance data now reach more filers' AIS, so a foreign VDA trade that was historically invisible is increasingly visible. File the INR conversion and Schedule FA now rather than defending their absence later.
Frequently asked questions
1. At what rate do I convert a USDT/USD crypto trade to INR?
The RBI reference rate on the trade date. Use the rate for the day of each transfer, not the day you view your portfolio. [VERIFY]2. Is a P2P sale taxable?
Yes — a P2P sale is a VDA transfer under s.115BBH, taxed at 30% + 4% cess on the gain. The consideration is the INR you actually received.3. Do I need to disclose crypto held on a foreign exchange?
Yes — in Schedule FA, as a foreign asset, with peak and closing balances, even if you did not trade in the year. Omission risks a penalty under the Black Money Act.4. Does the ITR fix my FEMA position for holding VDA abroad?
No. FEMA compliance (LRS limits, permissibility) is separate from income tax. Have the holding reviewed by a FEMA specialist.5. What is the cost of acquisition for a P2P purchase?
The agreed INR price you paid, backed by the payment trail. An undocumented cost basis is easily challenged at assessment.6. Do I pay TDS on a P2P sale?
Only if the buyer deducts and deposits it under s.194S. Most P2P buyers do not, so the seller owes the full 31.2% as advance tax.7. What if I used a VPN and a foreign exchange but am a resident?
Residency controls your tax. A resident Indian is taxable on worldwide VDA gains and must disclose foreign holdings in Schedule FA regardless of where or how the exchange was accessed.---
Last verified: 2026-08-08 (FY 2025-26 / AY 2026-27)
Sources: s.115BBH and s.2(47A), Income-tax Act, 1961; s.194S (1% TDS on VDA transfers); s.285BA read with Rule 114E / DGIT (Systems) AIS; Schedule FA instructions (ITR-2/ITR-3); ss.43, 41 and 50 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (s.43 = 300% penalty on undisclosed foreign asset, s.41 = ₹1,00,000 penalty for return default, s.50 = prosecution). FEMA 1999 read with the RBI LRS Master Direction — LRS does not permit outward remittances for purchase of virtual digital assets; a foreign VDA purchase funded from LRS is a FEMA contravention and needs compounding. Conversion rate: Rule 115 of the Income-tax Rules, 1962 (TT buying rate for capital-asset transfers). For reconciliation, use the AIS Reconciliation Tool.
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