Crypto Tax in India (§115BBH)

Crypto tax in India refers to the dedicated tax regime for Virtual Digital Assets (VDAs), including cryptocurrencies, introduced by Finance Act 2022 via Section 115BBH and Section 194S of the Income Tax Act, 1961.

Definition

Prior to Finance Act 2022, cryptocurrency gains in India were taxed under general capital-gains or business-income provisions depending on the nature and frequency of transactions. Finance Act 2022 superseded this ambiguity by creating Section 115BBH, which imposes a uniform 30% flat tax on income from the transfer of any Virtual Digital Asset (§2(47A)). "Transfer" is defined broadly: sale, exchange, barter, and gifting of VDAs all constitute a taxable transfer. The provisions are effective from Assessment Year 2023-24 (financial year 2022-23 onwards).

The 30% rate applies irrespective of the investor's income-tax slab, irrespective of the holding period, and irrespective of whether the VDA is held as a capital asset, stock-in-trade, or otherwise. Surcharge and cess apply on top of the 30% base rate.

Regulatory status in India

The 30% tax regime under §115BBH is an income-tax measure, not a securities-regulation measure. Cryptocurrencies are not regulated by SEBI as securities, nor are they regulated by RBI as legal tender or banking instruments. The income-tax framework creates compliance obligations but does not confer prudential protection (deposit insurance, investor compensation, redressal forums) that apply to SEBI-regulated products.

The FIU-IND (Financial Intelligence Unit — India) mandated Virtual Asset Service Providers (VASPs), including crypto exchanges, to register under the Prevention of Money Laundering Act (PMLA) via a March 2023 gazette notification. Non-compliant exchanges face enforcement action under PMLA. This does not bring VDAs under SEBI or RBI prudential oversight.

Tax treatment

Key provisions of the §115BBH regime:

• Rate: 30% flat on VDA income, plus surcharge (if applicable) plus 4% Health & Education Cess. Effective rate for non-surcharge taxpayers: 31.2%.
• No set-off — same VDA: A loss on transfer of one VDA (e.g., Ethereum sold at a loss) cannot be set off against gain on another VDA (e.g., Bitcoin sold at a gain) in the same year.
• No set-off — other heads: VDA loss cannot be set off against salary, business income, capital gains on shares/mutual funds, or any other income head.
• No carry-forward: VDA losses cannot be carried forward to future assessment years under any provision.
• Allowable deduction: Only the cost of acquisition of the VDA is deductible. No deduction for brokerage, platform fees, electricity (in mining), or internet costs.
• Mining income: If VDAs are mined, the fair market value on the date of receipt is the cost of acquisition and the taxable income basis. Subsequent sale triggers §115BBH on the gain above FMV at receipt.
• TDS: §194S requires 1% TDS by the payer/exchange on VDA transfers above threshold. See 1% TDS on Crypto.
• Gift of VDA: VDA received as gift (non-relative donor) above ₹50,000 in aggregate: taxable as income from other sources at slab rate.
• ITR disclosure: Schedule VDA in ITR-2/ITR-3; mandatory for all taxpayers with VDA transactions.

Operational considerations

Accurate tax compliance requires a full transaction log: date acquired, INR cost, date transferred, INR proceeds, and exchange/wallet identifiers. Indian exchanges operating under FIU-IND PMLA registration are required to maintain and potentially share transaction data with tax authorities. PAN linkage to exchange accounts enables automatic prefill in AIS (Annual Information Statement) for exchange-reported transactions. International exchange transactions not reported via AIS must be self-reported.

Worked example

Scenario: Ananya holds two VDA positions in FY 2023-24: (A) 1 ETH purchased at ₹2,00,000, sold at ₹3,50,000 — gain of ₹1,50,000. (B) 500 tokens of VDA-X purchased at ₹80,000, sold at ₹30,000 — loss of ₹50,000.

Tax calculation:

• VDA-A gain: ₹1,50,000 — taxable at 30% = ₹45,000
• VDA-B loss: ₹50,000 — cannot be set off against VDA-A gain under §115BBH
• Tax on VDA income: ₹45,000 + 4% cess = ₹46,800
• VDA-B loss: not deductible this year, not carry-forwardable
• Net VDA tax payable: ₹46,800 even though net economic gain was only ₹1,00,000

This asymmetry between the economic net gain (₹1L) and the taxable amount (₹1.5L) is the defining feature of the Indian VDA tax regime.

Note: This example is illustrative. Consult a qualified tax professional for individual advice.

See also

• Virtual Digital Asset (VDA)
• 1% TDS on Crypto (§194S)
• NFT Tax India
• Tax on Investments in India — Complete Guide
• Long-Term Capital Gains (LTCG)

Primary source

Finance Act 2022, Section 115BBH, Income Tax Act, 1961: incometaxindia.gov.in — Income Tax Act §115BBH. CBDT Circular on VDA reporting: CBDT Circular No. 13/2022 (guidance on §194S TDS).

MintByte is a SEBI-registered investment adviser (ARN-314872, APMI APRN-01658) offering services in mutual funds and NRI/GIFT City wealth management. MintByte does not advise on, recommend, or facilitate transactions in Virtual Digital Assets (VDAs) including cryptocurrencies. This content is factual and informational only, describing the legal and tax framework under Indian law. It is not investment advice. Past performance is not indicative of future returns. Read all scheme-related documents carefully.