Virtual Digital Asset (VDA)

Virtual Digital Asset (VDA) is the statutory term introduced by the Finance Act 2022 to describe cryptocurrencies, non-fungible tokens, and similar digital representations of value that are taxable under India's Income Tax Act, 1961.

Definition

Section 2(47A) of the Income Tax Act, 1961, inserted by Finance Act 2022 (effective 1 April 2022), defines a Virtual Digital Asset as: any information, code, number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme. The definition further includes non-fungible tokens and any other token of a similar nature as may be notified by the Central Government.

The term VDA deliberately replaces colloquial labels such as "cryptocurrency," "crypto," "coin," or "token" in all tax-law contexts. The Finance Act 2022 gazette notification (S.O. 1558(E), dated 31 March 2022) is the primary legal instrument. Fiat-equivalent stablecoins, utility tokens, and security tokens all fall within §2(47A) unless explicitly excluded by a Central Government notification.

Regulatory status in India

VDAs occupy a legally defined but narrowly scoped regulatory position in India as of June 2026. They are regulated exclusively under the income-tax framework (§115BBH, §194S, §2(47A)) and under the Prevention of Money Laundering Act (PMLA) via the FIU-IND registration mandate for virtual-asset service providers (March 2023 gazette notification).

VDAs are not regulated as securities under the SEBI Act, 1992, nor are they regulated under the RBI Act as currency, legal tender, or banking instruments. The Reserve Bank of India has publicly stated concerns about financial stability risks from private cryptocurrencies (RBI Annual Report 2022–23, Governor's statements). These concerns are RBI's public-policy position — they do not constitute a prohibition on holding VDAs as of June 2026.

The Supreme Court of India, in Internet and Mobile Association of India v. Reserve Bank of India (Civil Appeal No. 7230 of 2018, judgment dated 4 March 2020), set aside RBI's April 2018 circular that barred regulated financial entities from dealing with VDA businesses, finding it disproportionate. This ruling means banks and brokers may, at their discretion, service VDA businesses — it does not make VDAs legal tender or bring them under SEBI/RBI prudential oversight.

Tax treatment

Finance Act 2022 introduced a dedicated tax regime for VDAs, effective Assessment Year 2023-24:

• §115BBH — 30% flat tax: Any income from transfer of a VDA is taxed at 30% (plus applicable surcharge and cess), regardless of the holding period or the investor's income slab. No benefit of the basic exemption limit applies to VDA income.
• No set-off: Losses from VDA transfers cannot be set off against gains from another VDA or against any other head of income (salary, capital gains, business).
• No carry-forward: VDA losses cannot be carried forward to subsequent assessment years.
• Cost basis: Only the cost of acquisition is deductible. No deduction is allowed for cost of infrastructure (mining hardware, electricity) except for the cost of acquisition itself.
• §194S — 1% TDS: On transfer of VDA, the payer must deduct tax at source at 1% above threshold. See the 1% TDS on Crypto (§194S) entry for thresholds.
• Gifts of VDA: VDA received as a gift above ₹50,000 in aggregate from non-relatives is taxable as income from other sources at slab rates.

Operational considerations

Taxpayers holding VDAs must maintain transaction logs (date, INR value at time of acquisition, date and INR value at time of transfer) for each VDA unit. INR conversion uses the exchange rate on the date of transaction per RBI reference rates or the exchange's published rate. VDA income is reported in Schedule VDA of the ITR-2 / ITR-3 forms. Self-assessment tax liability under §115BBH must be paid before filing; advance-tax provisions apply if VDA gains are anticipated in the financial year.

Worked example

Scenario: Vikram, a salaried individual with taxable salary income of ₹12 lakh, purchased 0.1 BTC for ₹3,00,000 in September 2022 and sold it for ₹5,20,000 in March 2024.

VDA gain calculation:

• Sale proceeds: ₹5,20,000
• Less: cost of acquisition: ₹3,00,000
• VDA income (§115BBH): ₹2,20,000
• Tax at 30%: ₹66,000
• Health & Education Cess at 4%: ₹2,640
• Total tax on VDA income: ₹68,640

This ₹68,640 is in addition to the regular income tax on Vikram's salary. The VDA loss (if any) cannot reduce his salary tax. The exchange would have deducted 1% TDS (₹5,200) at the time of sale — this is adjustable against the ₹68,640 liability at filing.

Note: This example uses illustrative figures. Tax computations are indicative; consult a qualified tax professional for individual advice.

See also

• Crypto Tax India (§115BBH)
• 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 2(47A) of the Income Tax Act, 1961: incometaxindia.gov.in — Income Tax Act, 1961. Finance Act 2022 gazette: S.O. 1558(E), 31 March 2022. Supreme Court: IAMAI v. RBI, Civil Appeal 7230/2018, judgment 4 March 2020.

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.