Direct Tax Laws & International Taxation · Taxation of Digital Transactions

Taxation of Virtual Digital Assets: Crypto, NFTs, Loss and TDS

Updated 5 October 2026 · Fact-checked

Virtual digital assets (VDAs) such as crypto and NFTs are taxed on transfer at a flat 30%. You can deduct only the cost of acquisition. No other expense is allowed, and a loss cannot be set off against any other income. TDS at 1% of the consideration applies, subject to thresholds and to who is the person responsible for deducting.

Understand Taxation of Virtual Digital Assets

A virtual digital asset (VDA) is a code, number or token made through cryptographic means that represents value and can be transferred, stored or traded electronically. Crypto coins and non-fungible tokens (NFTs) are the standard examples. NFTs are included in the definition, and the Central Government may notify any NFT as not being a VDA. Indian and foreign currency are not VDAs. Gift cards, vouchers, mileage points, loyalty cards and similar items are also excluded from the definition. The Central Government can also notify other assets as VDAs, and can exclude some from the definition.

The law treats VDA transfers as a separate class of income with its own rules. It does not matter whether you hold the VDA as an investment or as stock-in-trade. It does not matter how long you held it. Income from transfer is taxed at one flat rate of 30%, plus surcharge and health and education cess as applicable.

The computation is deliberately harsh. Income is the consideration less the cost of acquisition, and nothing else. Brokerage, exchange fees, gas fees, electricity, internet and interest on borrowed money are all disallowed. No deduction in respect of any expenditure or allowance is allowed, and no deduction under the Chapter on deductions can be set against this income either. The cost of acquisition is the only deduction.

Losses get no relief. A loss from transfer of a VDA cannot be set off against income from another VDA or against any other income, and it cannot be carried forward. Each VDA transfer is looked at on its own. Gains are taxed in full, but losses are wasted.

On the collection side, the person responsible for paying a resident for transfer of a VDA deducts TDS at 1% of the consideration. The threshold applies to the payer's aggregate consideration paid in the year, not to the seller. It is ₹50,000 where the payer is a specified person: an individual or HUF with no business income, or with business turnover or receipts within the audit limits. It is ₹10,000 for all other payers. Who is responsible for deducting depends on the structure of the transaction. In a direct (peer-to-peer) deal, it is usually the buyer. Where the transfer is made through an exchange or broker, the exchange or broker may be the person responsible for deducting, so TDS does not always fall on the buyer. Where the consideration is in kind or in another VDA, the person responsible must make sure tax is paid before releasing the consideration. Separately, a gift of a VDA can be taxable as income from other sources in the recipient's hands, under the rules on gifts without consideration.

Key rules to remember

Income from transfer of VDA: Income = Consideration on transfer − Cost of acquisition; No other expense, allowance or deduction is permitted against this income. Brokerage and exchange fees are not allowed.
Tax rate: Tax = 30% × VDA income (plus surcharge and cess as applicable); Flat rate irrespective of holding period, nature of holding (capital or business) and the person's slab.
Loss treatment: Loss from transfer of VDA: no set-off against any other income, no carry forward; This covers other heads and gains on other VDAs. A loss gives no tax benefit.
TDS on transfer to a resident: TDS = 1% × Consideration paid; Applies once the payer's aggregate consideration in the year crosses the threshold. The threshold is ₹50,000 if the payer is a specified person (an individual or HUF with no business income, or with business turnover or receipts within the audit limits) and ₹10,000 for all other payers. It is tested on the payer, not the seller. Where the transfer is through an exchange or broker, that intermediary may be the one to deduct.
Net amount received by seller: Net receipt = Consideration − TDS at 1%; The seller claims TDS as credit against final tax. The TDS is not the final tax.

How to solve Taxation of Virtual Digital Assets questions

Use this order for any question on crypto, NFTs or other VDAs. It keeps the computation, loss and TDS parts separate, so you do not lose marks on any of them.

1Identify the asset. Confirm that it is a VDA (crypto, NFT or a notified token) and not Indian or foreign currency, or an excluded item such as a gift card, voucher or loyalty point.
2List every transfer separately, with its consideration and its cost of acquisition. Treat each VDA separately.
3Compute the income or loss of each transfer as consideration less cost. Ignore brokerage, fees, mining costs and interest.
4Treat any loss as zero for tax purposes. Do not set it off against another VDA gain, salary, business income or capital gains, and do not carry it forward.
5Total the positive VDA incomes only and apply 30%. Add surcharge and cess only if the question gives the data for them.
6Do not set any expenditure, allowance or Chapter deduction against VDA income. Only the cost of acquisition is allowed. Apply Chapter deductions to the other income only, as the question allows.
7Deal with TDS. First identify the person responsible for deducting: the buyer in a direct deal, or the exchange or broker where the transfer goes through one. Then test the threshold on the payer's aggregate consideration in the year (₹50,000 for a specified person, ₹10,000 for others) and compute 1% of the consideration. Show credit to the seller.
8State the conclusion in provision, facts, conclusion form.

Quickest way: Four-line VDA check

When to use it: Use it for MCQs and for the opening lines of a written answer when time is short.

Ask: is it a VDA? If yes, flat 30%.
Gain per transfer = sale price − purchase price. Drop every other expense.
If any transfer shows a loss, write nil and move on. No set-off, no carry forward.
TDS is 1% of the sale price, not of the gain. Find who must deduct (buyer, or exchange or broker), then check the payer's threshold: ₹50,000 for a specified person, ₹10,000 for others.

Common mistakes in Taxation of Virtual Digital Assets

Deducting brokerage, exchange fees or electricity to arrive at VDA income.
Students carry over business income habits where all expenses are allowed.
Fix: Allow only the cost of acquisition. Write 'no other deduction allowed' in your answer.
Setting off a loss on one crypto against the gain on another.
It feels like the same asset class, and capital gains allow such set-off.
Fix: Compute each VDA transfer separately. Treat every loss as nil for tax.
Applying short-term or long-term capital gains rates based on holding period.
VDAs are capital assets in many cases, so students apply the capital gains rules.
Fix: Holding period does not matter. The special 30% rate applies on all VDA transfer income.
Computing TDS at 1% of the gain instead of 1% of the consideration.
Students link TDS with income, as in TDS on salary.
Fix: TDS is on the amount paid for the transfer. The cost is ignored.
Treating TDS as the final tax and ignoring the 30% computation.
The 1% TDS looks like the main levy.
Fix: Compute the full 30% tax. TDS is only credit against it.
Carrying a VDA loss forward to later tax years.
Students assume all losses can be carried forward for some period.
Fix: A VDA loss is not carried forward. Remember that a VDA loss gets no relief by way of set-off and no relief by way of carry forward.
Applying the TDS threshold by looking at the seller, or assuming the buyer always deducts.
Students think of the seller's status and forget that the thresholds and the duty to deduct sit with the payer or the intermediary.
Fix: Test the payer's status and aggregate consideration for the year. Check whether an exchange or broker is the person responsible.

Worked examples

Example 1

Case: Neha, a resident individual, sold Bitcoin in the tax year for ₹5,00,000, which she bought for ₹3,20,000. She paid ₹4,000 as brokerage and exchange fees. She also sold an NFT for ₹90,000 that she bought for ₹2,00,000. Compute her tax on VDA income, ignoring surcharge and cess.

Show the solution

Both assets are VDAs, so the special regime applies. The holding period does not matter.
Bitcoin: consideration ₹5,00,000 − cost ₹3,20,000 = ₹1,80,000 gain.
Brokerage and exchange fees of ₹4,000 are not allowed. Only cost is deductible.
NFT: ₹90,000 − ₹2,00,000 = loss of ₹1,10,000. This loss cannot be set off against the Bitcoin gain or any other income, and cannot be carried forward.
Income chargeable under the VDA regime = ₹1,80,000 (loss treated as nil).
Tax at 30% = ₹1,80,000 × 30% = ₹54,000.

Answer: VDA income is ₹1,80,000 and tax at 30% is ₹54,000, before surcharge and cess. The NFT loss of ₹1,10,000 and the fees of ₹4,000 give no relief.

Example 2

Case: Aarav, a salaried resident individual with no business income, buys a token directly from Dev, a resident, for ₹1,20,000 in one payment. No exchange or broker is involved. Dev bought it for ₹1,50,000. State the TDS position and Dev's tax position.

Show the solution

The token is a VDA, and Dev is a resident. The deal is direct, so Aarav, as the payer, is the person responsible for deducting TDS.
The threshold depends on the payer. Aarav is an individual with no business income, so he is a specified person and the ₹50,000 threshold applies to his aggregate consideration in the year. ₹1,20,000 exceeds it, so TDS is due.
TDS = 1% × ₹1,20,000 = ₹1,200. It is on the consideration, not on any gain.
Aarav pays Dev ₹1,20,000 − ₹1,200 = ₹1,18,800 and deposits ₹1,200 with the Government.
Dev's result: ₹1,20,000 − ₹1,50,000 = loss of ₹30,000. The loss cannot be set off against other income or carried forward.
TDS is still deducted even though Dev has a loss. Dev can claim credit for ₹1,200, and if no tax is payable he can claim a refund on filing his return.

Answer: Aarav, as payer and a specified person, deducts TDS of ₹1,200 (1% of ₹1,20,000) and pays Dev ₹1,18,800. Dev has a loss of ₹30,000 that gives no tax relief, but he can claim credit or refund of the ₹1,200. Had the sale gone through an exchange or broker, that intermediary might have been the one to deduct.

Exam tips

In a case with several crypto and NFT trades, build a small table of consideration, cost and result for each transfer. Mark loss cases as nil.
Always say why a deduction fails: only cost of acquisition is allowed. Examiners give marks for the reason, not only the figure.
For TDS, state who deducts (buyer, or exchange or broker where one is involved), the rate of 1%, the payer-based threshold and that it applies on the consideration. Then add the credit to the seller.
Do not quote section numbers unless you are sure of the Income-tax Act, 2025 numbering. Describe the provision in words and use the 2025 Act's terms such as 'tax year'.
Watch for a mixed case: VDA losses alongside salary or capital gains. The answer is that losses do not reduce other income.

Practice questions from Taxation of Digital Transactions

Taxation of Virtual Digital Assets in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CFA Level ITypes of Digital Assets

Taxation of Virtual Digital Assets: frequently asked questions

How is a loss on crypto treated for tax?

A loss from transfer of a VDA cannot be set off against income from another VDA or against any other income. It also cannot be carried forward. The loss gives no tax benefit.

What is the tax rate on crypto income under the Income-tax Act, 2025?

Income from transfer of a VDA is taxed at a flat 30%, plus surcharge and cess where applicable. The rate does not depend on the holding period or on your income slab. Only the cost of acquisition can be deducted.

Is TDS on VDA transfer 1% of profit or of sale value?

It is 1% of the consideration paid for the transfer, not of the profit. It applies once the payer's aggregate consideration in the year crosses the threshold: ₹50,000 for a specified person and ₹10,000 for other payers. The seller gets credit for the TDS against the final tax.

Are NFTs also covered by the VDA rules?

Yes. NFTs are included in the definition of a virtual digital asset, and the Central Government may notify any NFT as not being a VDA. Items such as gift cards, vouchers, mileage points and loyalty cards are excluded from the definition. The same 30% rate, no-set-off rule and TDS apply to NFTs that fall within the definition.

Who deducts TDS when VDAs are sold through an exchange?

It depends on the structure of the transaction. Where the transfer is through an exchange or broker, the exchange or broker may be the person responsible for deducting TDS. In a direct deal between two persons, the buyer as payer is usually responsible.