📌 Introduction

In the digital age, the rise of digital assets such as cryptocurrencies, non-fungible tokens (NFTs), and other blockchain-based tokens has opened up new avenues for earning. Individuals are now increasingly involved in reselling digital assets via Indian portals and global exchanges. With this rise comes the need for proper reporting and compliance with Indian tax laws. The Indian government has brought Virtual Digital Assets (VDAs) under the ambit of income tax and TDS (Tax Deducted at Source), making it mandatory for individuals and entities to report gains or losses.

This article explains how to accurately report income from reselling digital assets, how they are taxed in India, and what forms and schedules are applicable, along with practical examples.

📘 What Are Digital Assets?

Digital assets are non-tangible items that are created, traded, and stored in digital format. Under Indian tax laws, a new category called Virtual Digital Assets (VDAs) has been defined to include:

• Cryptocurrencies (like Bitcoin, Ethereum)

• Non-Fungible Tokens (NFTs)

• Tokens, utility coins

• Any other digital representation of value based on blockchain or similar technology

💰 How Is Income from Digital Assets Categorized?

When you resell digital assets, the profit you earn is considered as income and must be reported accordingly. The classification of income depends on the nature and frequency of transactions.

✅ 1. Capital Gains

If you are reselling digital assets occasionally and not as a regular business, your profits are categorized as Capital Gains.   

• Short-Term Capital Gain (STCG) – If sold within 36 months

• Long-Term Capital Gain (LTCG) – Not applicable for VDAs (post-April 2022) as a flat 30% tax is imposed regardless of duration

✅ 2. Business Income

If you're regularly buying and selling digital assets with an intention to earn profits, it is treated as business income.

• You will be required to maintain proper books of accounts.

• Deduction for expenses (like electricity bills, software tools, etc.) may be allowed under business income.

✅ 3. Income from Other Sources

In cases where digital assets are gifted, mined, or airdropped, they are classified under Income from Other Sources and taxed accordingly.

📊 Applicable Tax Rates for Digital Assets

From Financial Year 2022-23, the following tax provisions apply for reselling digital assets:

🔸 Flat 30% Income Tax

All gains from the transfer or resale of VDAs are taxed at a flat rate of 30% under Section 115BBH of the Income Tax Act.

• This tax rate applies regardless of the holding period.

• It is calculated only on the net gain (sale price – purchase price).

• No deduction is allowed for any expense other than cost of acquisition.

🔸 4% Health and Education Cess

An additional 4% cess is applicable on the income tax calculated.

🔸 No Set-Off of Losses

Losses incurred in VDA transactions:

• Cannot be set off against any other income (salary, capital gain, business income, etc.)

• Cannot be carried forward to future years

💡 Example: How to Calculate Tax

Let’s say you bought 2 Ethereum tokens at ₹1,00,000 and sold them at ₹1,80,000. Here’s how the tax will apply:

• Profit = ₹1,80,000 – ₹1,00,000 = ₹80,000

• Income Tax @30% = ₹24,000

• Cess @4% = ₹960

• Total Tax Payable = ₹24,960

This entire amount should be reported under the relevant section in your ITR.

 TDS on Digital Asset Transactions

From July 1, 2022, a 1% TDS is applicable on the sale consideration of digital assets exceeding:      

• ₹50,000 in a financial year (for individuals/HUF not subject to tax audit)

• ₹10,000 in other cases

✅ Points to Note:

• The buyer is required to deduct TDS at 1% of the sale price.

• TDS is applicable even if the transaction is in loss.

• Sellers can claim credit of TDS while filing their income tax return (ITR).

📋 Reporting in Income Tax Return (ITR)

The Income Tax Department of India has introduced 'Schedule VDA' in ITR forms to report income from digital assets. You need to choose the correct ITR based on your income type:

✅ Applicable ITR Forms:

📂 Schedule VDA – Information to be Filled:

In the Schedule VDA, you will be required to furnish:

• Details of each digital asset sold

• Date of acquisition and sale

• Sale consideration

• Cost of acquisition

• Tax deducted (TDS)

• Net income earned

Make sure that your records are accurate, consistent and complete, as the department may cross-verify with exchanges and wallet details.

📎 Supporting Documents to Maintain                                               

• Invoices or bills of purchase and sale

• Bank statements or UPI transaction proof

• Wallet addresses (sender/receiver)

• TDS certificates (Form 26AS or Form 16A)

• Trade logs from the exchange portal

These documents may be asked for during assessment or audit.

📌 GST Applicability on Digital Assets

As of now, GST is not directly applicable on trading of cryptocurrencies for personal investment. However:

• If you are operating a digital asset trading business, GST may be applicable on commission or service fees charged.

• Mining may attract GST if services are rendered for a fee.

It is advised to consult a GST expert if you’re running a business involving digital assets.

💼 Filing Tips and Best Practices

✅ Maintain Transaction Logs Monthly:
Use spreadsheets or software to track profits, losses, wallet addresses, and date-wise trading history.

✅ Use Crypto Tax Calculators:
There are tools that help in aggregating data and computing gains per trade which can be very helpful during ITR filing.

✅ Declare TDS Properly:
Ensure TDS deducted by portals or buyers is correctly reflected in Form 26AS.

✅ Avoid Cash Transactions:
Use traceable means of payment—bank, UPI, or through regulated platforms.

✅ Consult a Tax Professional:
If you're frequently trading or earning high gains, professional advice can help minimize errors and maximize compliance.

⚠️ Consequences of Non-Compliance

Failing to report income from reselling digital assets may lead to:

• Interest and penalty under Section 234A, 234B, and 234C

• Tax notices and scrutiny from the Income Tax Department

• In serious cases, prosecution and penalty under Section 270A or 271C

Therefore, it's essential to disclose all VDA-related income transparently.

 Frequently Asked Questions (FAQs)

Q1. Do I need to report even small VDA gains?
Yes. Even small gains from reselling digital assets are taxable and must be reported.

Q2. Can I report VDA income in ITR-1?
No. ITR-1 is not applicable for those having income from VDAs.

Q3. What if I sell multiple digital assets in a year?
Each sale has to be reported separately in the Schedule VDA section.

Q4. Can I claim expenses like internet bills or gas fees?
No. Only cost of acquisition is allowed as a deduction. Other expenses are not allowed.

🏁 Conclusion

The Indian government has made it mandatory to report income from digital asset trading. Whether you're a regular trader or an occasional seller, filing your ITR accurately with Schedule VDA is critical. The 30% flat tax, TDS provisions, and strict loss disallowance rules highlight the seriousness of crypto taxation in India.

Resellers of digital assets should maintain detailed records, file correct forms, and stay updated with changes in tax laws to avoid penalties. As the regulatory framework around digital assets continues to evolve, transparency and compliance are your safest bets.

Created & Posted by Twinkle Jha

Operations Head at TAXAJ

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