The Finance Act 2022 created a specific tax regime for Virtual Digital Assets (VDAs) — the legislative term for cryptocurrencies, NFTs, and other digital tokens. Section 115BBH imposes a flat 30% tax rate on any income from transfer of VDAs, with no deduction allowed except the cost of acquisition. No set-off of losses from one VDA against gains from another VDA within the same year. No carry forward of losses to subsequent years. No benefit of long-term capital gains rates regardless of holding period. No indexation. This is, arguably, the most punishing tax regime in the Income Tax Act for a named asset class.
Section 115BBH, Income Tax Act — VDA Taxation
Where the total income of an assessee includes any income from transfer of any virtual digital asset, the income-tax payable shall be the aggregate of... tax on income from transfer of any virtual digital asset, computed at the rate of thirty per cent. No deduction in respect of any expenditure (other than cost of acquisition) or allowance or set off of any loss shall be allowed in computing such income.
Statutory Reference
VDA Tax Regime vs. Stock Market — Comparison
Tax Rate
VDA: 30% flat (plus surcharge/cess). Listed equity: 12.5% LTCG if held 12+ months; 20% STCG. VDA pays at least 2.4x more tax than equity on equivalent gains.
Loss Set-Off
VDA losses cannot be set off against salary, capital gains from shares, house property income, or any other income head. Equity losses can be set off against equity gains and carried forward 8 years.
Intra-Asset Loss Set-Off
VDA: Bitcoin loss cannot be set off against Ethereum gain in the same year (government's position). Equity: Loss from one stock offsets gain from another — net gain is taxed.
A crypto investor who made ₹5 lakh on Bitcoin and lost ₹3 lakh on Ethereum in the same year has a net loss of ₹2 lakh economically — but pays 30% tax on ₹5 lakh gain (₹1.5 lakh tax) with zero recognition of the Ethereum loss.
— Sami Tax VDA Tax Advisory, February 2025
The 1% TDS requirement under Section 194S adds compliance complexity: every sale of VDA exceeding ₹10,000 per transaction requires the buyer/exchange to deduct 1% TDS. For Indian exchanges, this is automated. For peer-to-peer transactions or foreign exchanges, TDS compliance falls on the buyer — and missed TDS creates a disallowance exposure for the buyer under Section 40(a)(ia). The practical impact: most serious VDA investors should be transacting only through TDS-compliant exchanges and maintaining transaction records meticulously for ITR-2 filing.
VDA Tax Compliance and Planning
- Maintain a transaction log for all VDA purchases and sales — cost basis, date of acquisition, and consideration received.
- Use this to compute your annual VDA income (net of acquisition cost only) for ITR-2 filing.
- Do not attempt to set off VDA losses against salary or other income — it is not permitted and creates an audit flag.
- The only structural planning available: timing of realisation (defer profitable VDA sales across financial years where possible to spread the 30% burden) and ensuring all TDS credits are correctly reflected in your Form 26AS before filing.
- For foreign exchange transactions: report foreign assets under Schedule FA in ITR-2; failure to disclose VDAs held on foreign exchanges is a Black Money Act prosecution risk, not merely a tax default.
- Our team has assisted clients with retrospective VDA compliance going back to AY 2022-23 — the first year of mandatory reporting.