🚀 Background: Taxing Crypto in India

In the Union Budget 2022–23, the Government of India introduced a formal taxation framework for Virtual Digital Assets (VDAs), which includes cryptocurrencies and NFTs. Key highlights of this taxation policy are:

1. Flat 30% tax (Section 115BBH) on income from transfer of VDAs

2. 1% TDS (Section 194S) on payments for VDA transfers

3. No deduction or set-off of losses allowed in computation of such income

This marked a shift from the earlier ambiguous stance on digital asset taxation, offering clarity and certainty for crypto investors and businesses operating in India.

💸 Section 115BBH: Flat 30% Tax on Crypto Gains

What It Means:

• All income from the transfer of crypto assets is taxed at a flat rate of 30%.

• No distinction is made between short-term or long-term holdings.

• No deductions for expenses other than the cost of acquisition.

• Losses cannot be set-off against any other income and cannot be carried forward to subsequent years.

This flat-rate tax applies whether you’re a retail investor, professional trader, or institutional participant.

🔢 Section 194S: 1% TDS on Crypto Transfers

Applicability:

• TDS @ 1% applies on the payment made for transfer of VDAs.

• Applies if total payment in a financial year exceeds:

  • ₹10,000 for general taxpayers

  • ₹50,000 for specified persons (individuals/HUFs with turnover below ₹1 crore in business or ₹50 lakhs in profession)

Timing of Deduction:

• TDS must be deducted at the time of payment or credit, whichever is earlier.

🧾 CBDT Circulars on Crypto TDS

To implement Section 194S effectively, the CBDT issued two detailed circulars.

📘 Circular No. 13/2022

Clarifies the role of exchanges and brokers in deducting TDS:

• If the transaction happens through an exchange, the exchange is responsible for deducting TDS.

• In brokered transactions, either the broker or the exchange must deduct TDS based on a written agreement.

• In peer-to-peer (P2P) transactions, the buyer is responsible for deducting TDS.

• For crypto-to-crypto trades, both parties must deduct TDS before releasing the respective VDAs.

📘 Circular No. 14/2022

Covers non-exchange transactions:

• Clarifies that if consideration is partly or wholly in kind, the buyer must ensure that tax is paid before transferring the asset.

• In barter-type exchanges, proof of tax payment must be presented prior to executing the trade.

These circulars provide operational clarity on how TDS compliance must be ensured in various types of VDA transactions.

🎁 Crypto Gifting and Taxation – Section 56(2)(x)

VDAs received as gifts are also taxable in the hands of the recipient under the Income Tax Act:

• If the total value of crypto gifts exceeds ₹50,000 in a year, it is taxable as income under the head “Income from Other Sources”.

• Gifts from relatives or on specified occasions like weddings may be exempt, as per general income tax provisions.

Hence, crypto gifts are not a loophole to avoid tax and must be reported.

⚙️ Crypto Mining and Staking – Business Income

Mining Income:

• Considered as business income and taxable at slab rates.

• The mined cryptocurrency is considered self-generated stock and must be reported at its fair market value on the day it is mined.

Staking Rewards:

• Treated similarly to mining—business or professional income depending on the nature and frequency of the activity.

• Declared under “Profits and Gains from Business or Profession”.

Thus, mining and staking are not capital gains transactions and are taxed as active income streams.

🧠 Reporting Requirements in Income Tax Return

Taxpayers dealing in VDAs must file ITR-2 or ITR-3 and report their crypto activity in detail:

• Schedule VDA is newly introduced for disclosing:

  • Date of acquisition

  • Date of transfer

  • Consideration received

  • Cost of acquisition

  • TDS deducted

• Form 26Q or 26QE must be filed for TDS compliance depending on your category.

• VDA income must not be reported in ITR-1 or ITR-4, as these forms are not designed to handle crypto reporting.

Non-disclosure or misreporting can attract notices, penalties, or worse—prosecution.

📢 CBDT's "NUDGE" Program and Crypto Audit Notices

CBDT has launched a targeted compliance campaign using its “NUDGE” mechanism to identify and alert taxpayers with crypto income mismatches:

• Over 40,000 taxpayers have received alerts for possible under-reporting of crypto gains.

• These notices focus on mismatches between Form 26AS, AIS (Annual Information Statement), and ITR filings.

• The program also tracks crypto wallet addresses, IP usage, and PAN-based activity across exchanges.

This underscores the importance of accurate disclosure and full tax compliance.

🔍 What Is Not Considered as a VDA?

CBDT has clarified that the following are not considered Virtual Digital Assets:

• Gift cards or vouchers

• Mileage points (such as airline miles)

• Loyalty points

• Subscription to websites or platforms

These exclusions are important to avoid confusion while classifying your digital assets.

📊 Implications for Crypto Traders and Investors

📅 Short-Term Traders:

• Pay 30% flat tax on profits.

• Cannot claim any losses even from other crypto trades.

• Must deduct and deposit 1% TDS on every sale exceeding limits.

📅 Long-Term HODLers:

• No benefit of long-term capital gain taxation.

• Even long-held assets are taxed at 30% on transfer.

• TDS still applies at time of sale.

🛠️ Crypto Startups & Exchanges:

• Must deduct and deposit TDS on behalf of users.

• File periodic TDS returns and issue TDS certificates.

• Maintain detailed transaction logs and user KYC.

💼 Freelancers Accepting Crypto:

• Income from crypto payments is taxed as business income.

• Conversion to INR must be documented with the value and date.

📆 Crypto Taxation Timeline

• April 1, 2022 – Flat 30% tax regime on VDAs (Section 115BBH) introduced

• July 1, 2022 – 1% TDS on crypto payments becomes effective (Section 194S)

• June 2022 – CBDT issued Circulars 13 and 14 to clarify TDS applicability

• FY 2024–25 – CBDT increases scrutiny through NUDGE program and audit enforcement

• September 15, 2025 – Extended deadline to file crypto-inclusive ITRs for FY 2024–25

✅ Compliance Checklist for Crypto Investors

• Track each crypto trade, including date, type, consideration, and exchange

• Deduct 1% TDS where applicable and deposit using appropriate challans

• Report income under correct ITR form (ITR-2 or ITR-3)

• Disclose all transfers under Schedule VDA

• Respond to any NUDGE notice within timeline

• Avoid using ITR-1 or ITR-4 if you have crypto transactions

• Retain TDS certificates and transaction proofs for records

• Reconcile income and Form 26AS before filing returns

🔮 Future Outlook: What Lies Ahead for Crypto Taxation?

• GST on Crypto: The government is exploring how crypto transactions can be brought under the GST net.

• Global Reporting Norms: India is expected to align with OECD’s Crypto Asset Reporting Framework (CARF).

• Valuation Guidelines: Future clarification may be issued on how to determine FMV for swaps or illiquid tokens.

• Increased Exchange Regulations: Exchanges may soon be required to submit bulk data reports on user activity.

• Legal Framework: A comprehensive law regulating crypto assets is still awaited; until then, tax compliance is mandatory.

🏁 Final Thoughts

CBDT’s clarifications on crypto taxation bring transparency, uniformity, and accountability to one of the most dynamic financial sectors in India. Whether you’re an investor, trader, exchange operator, or blockchain innovator, you must:

• Comply with 30% flat tax on crypto gains

• Deduct and deposit 1% TDS on every eligible transfer

• Accurately report in ITR using Schedule VDA

• Stay ready for audits and reconcile with AIS & Form 26AS

While taxation doesn’t equate to legalization, it does ensure legitimacy. By staying compliant, crypto players can contribute to a regulated and trustworthy ecosystem—paving the way for a more mature market landscape in India