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India retained its 30% tax on income from virtual digital assets and the 1% tax deducted at source on qualifying transfers. However, the government has expanded transaction reporting requirements for prescribed crypto entities from April 1, 2026.
The Income Tax Department’s new VDA explainer brings the tax, TDS and reporting provisions into one document. It also lists the digital assets covered by the rules and the penalties that reporting entities may face for non-compliance.
The Income Tax Department explained that income from transferring a VDA remains taxable at a flat rate of 30%. Taxpayers must also pay the applicable surcharge and cess. The new reporting framework does not lower this rate or change the method used to calculate taxable income.
Under Section 115BBH, a taxpayer may deduct only the cost of acquiring the asset. The law does not allow deductions for other expenses. It also prevents taxpayers from offsetting a VDA loss against other income or carrying that loss into a later financial year.
Meanwhile, Section 194S continues to require 1% TDS on payments made to Indian residents for VDA transfers. For specified individuals and Hindu Undivided Families, the annual threshold is Rs. 50,000. The threshold stands at Rs. 10,000 for other taxpayers.
The VDA definition covers cryptocurrencies, certain non-fungible tokens and other notified digital assets. It also includes digital representations of value that use a cryptographically secured distributed ledger or similar technology to validate transactions.
However, Indian currency, foreign currency and India’s central bank digital currency do not qualify as VDAs. The government may also exclude other digital assets through official notifications.
Gift cards, vouchers, reward points, loyalty cards and subscriptions to websites or digital platforms are among the listed exclusions. Certain NFTs also fall outside the definition when their transfer legally passes ownership of an underlying physical asset.
Section 285BAA introduced a separate reporting duty for prescribed entities handling crypto-asset transactions. These entities must provide transaction information to the Income Tax Department in the required form, within the specified period and through the designated filing process.
The Income-tax Act, 2025, which took effect on April 1, 2026, carries the reporting requirement under Section 509. Therefore, Section 285BAA refers to the earlier statutory framework, while Section 509 contains the corresponding rule under the current act.
The reporting duty does not replace individual tax filings. Crypto investors must continue reporting their transfers through Schedule VDA in their income tax returns. They must also maintain records of acquisition costs, sale values, swaps, and other transfers.
A prescribed entity that misses the reporting deadline may face a penalty of Rs. 200 for each day the failure continues. Authorities may also impose a Rs. 50,000 penalty when an entity submits inaccurate information, fails to correct an identified error, or does not complete the required checks.
When authorities identify a defective statement, they may direct the reporting entity to correct it. Entities must also amend information when they discover errors after filing. These requirements place the reporting responsibility mainly on exchanges, service providers and other prescribed intermediaries.
The new framework increases the transaction information available to the tax department, but it does not create a new tax for investors. The 30% VDA tax, 1% TDS, limits on deductions and restrictions on offsetting losses remain unchanged.
