Cryptocurrency Tax Masterclass 2025: VDA Taxation, TDS, and Schedule VDA Filing
Complete guide to Section 115BBH (30% tax), Section 194S (1% TDS), loss offset prohibition, and compliance
- 30% flat tax + 4% cess = 31.2%: No slabs, no deductions, no exemptions
- 1% TDS (Section 194S): Deducted on every sale above ₹10,000 cumulative per year
- NO loss offset: Losses from one crypto cannot reduce gains from another - losses die forever
- Schedule VDA mandatory: Report all crypto in ITR from AY 2023-24
Harsh Reality Check
India has one of the world's most punitive crypto tax regimes: 30% flat tax on gains, 1% TDS on every transaction, and NO loss offsetting. Even a ₹10,000 gain from crypto is taxed at ₹3,000.
What are Virtual Digital Assets (VDA)?
Budget 2022 introduced the term "Virtual Digital Assets" (VDA) covering cryptocurrencies, NFTs, and similar digital tokens (excluding gift vouchers and loyalty points).
VDA Includes:
- • Bitcoin, Ethereum, altcoins
- • NFTs (art, gaming assets)
- • Utility tokens
- • Stablecoins (USDT, USDC)
- • DeFi tokens
- • Exchange tokens (BNB, FTT)
- • Meme coins (DOGE, SHIB)
- • Any crypto asset on blockchain
Section 115BBH: The 30% Flat Tax
Key Features
30% Flat Rate (+ 4% cess = 31.2% total)
- • No slabs - even ₹10,000 profit = 30% tax
- • No deductions (80C, 80D, etc.)
- • Cannot be reduced by choosing old regime
NO Loss Offset
- • Loss from one crypto CANNOT offset gain from another
- • Loss cannot be carried forward to next year
- • Loss cannot offset other income (salary, business)
Only Direct Cost Allowed
- • Purchase price of crypto
- • Transaction fees (buy/sell)
- • Gas fees (for blockchain transactions)
- • Nothing else (no electricity, internet, hardware)
Section 194S: 1% TDS on Every Transaction
From July 1, 2022, exchanges must deduct 1% TDS on every crypto sale above ₹10,000 (cumulative per year).
How TDS Works
Example: Simple Sale
- • You sell Bitcoin for ₹1,00,000
- • Exchange deducts 1% TDS = ₹1,000
- • You receive: ₹99,000
- • TDS certificate (Form 26AS) shows ₹1,000 credit
₹10,000 Threshold (Tricky!)
TDS applies if cumulative transactions exceed ₹10,000 in FY:
- • First sale: ₹5,000 → No TDS
- • Second sale: ₹6,000 → Total ₹11,000 → TDS on ₹6,000
- • All subsequent sales → 1% TDS
Schedule VDA in ITR
From AY 2023-24, ITR has a dedicated "Schedule VDA" to report all crypto income.
What to Report
Sale Details
Date of sale, quantity, sale price, buyer PAN (if P2P)
Purchase Details
Date of purchase, quantity, cost, transaction fees
Profit Calculation
Sale price - cost - fees = Taxable profit
TDS Deducted
Amount of TDS (from Form 26AS or exchange certificate)
Tracking Cost Basis: The Nightmare
Method 1: FIFO (First-In-First-Out)
Assume first coin bought is first sold. Income Tax Act doesn't specify method, but FIFO is generally accepted.
Example:
- • Jan 2024: Buy 1 BTC @ ₹20L
- • Mar 2024: Buy 1 BTC @ ₹30L
- • Jun 2024: Sell 1 BTC @ ₹35L
- • FIFO: Cost = ₹20L, Profit = ₹15L
Problem: Multiple Exchanges, Wallets, Trades
If you trade across Binance, WazirX, CoinDCX + move coins to wallets, tracking cost basis manually is nearly impossible.
Solution: Use crypto tax software (Koinly, CoinTracker, ZenLedger) to auto-calculate.
The only legal strategy: Minimize trades to reduce 1% TDS drain and 30% tax events. If you must trade, document EVERY transaction with FIFO cost basis. Use crypto tax software like Koinly or CoinTracker to auto-calculate. Report accurately in Schedule VDA - IT Department has exchange data and mismatches trigger Section 148 reassessment notices with 200% penalties.
Real-World Tax Calculation
Scenario: Active Trader
FY 2024-25 Activity:
- • Trade 1: Buy BTC @ ₹20L, Sell @ ₹30L = ₹10L profit
- • Trade 2: Buy ETH @ ₹15L, Sell @ ₹12L = ₹3L loss
- • Trade 3: Buy DOGE @ ₹1L, Sell @ ₹2L = ₹1L profit
Tax Calculation (Harsh Reality):
- • Total Gains: ₹10L + ₹1L = ₹11L
- • Total Losses: ₹3L (CANNOT offset gains!)
- • Taxable Income: ₹11L (not ₹8L)
- • Tax @ 31.2%: ₹3,43,200
- • TDS already deducted: ₹11,000 (1% of ₹11L)
- • Tax Payable: ₹3,32,200
Common Income Tax Notices for Unreported Crypto
Section 148: Reassessment Notice
IT Dept matches exchange TDS data with your ITR. If mismatch found, notice issued demanding explanation + taxes.
Section 142(1): Inquiry Notice
Asks for details of crypto holdings, transactions, profit/loss statements, and TDS certificates.
Penalty Risk
Non-disclosure can attract 50-200% penalty under Section 270A + interest @ 1% per month.
How to Respond to Crypto Tax Notice
Step 1: Download all transaction history from exchanges (CSV format)
Step 2: Use crypto tax software to generate gain/loss report
Step 3: Match TDS in Form 26AS with exchange TDS certificates
Step 4: File revised ITR including Schedule VDA with correct figures
Step 5: Respond to notice with revised ITR acknowledgment + supporting docs
Tax Saving Strategies (Legal)
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Hold Long-Term (Doesn't Help!)
Unlike stocks, crypto has NO LTCG benefit. 30% applies whether you hold 1 day or 10 years.
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Avoid Frequent Trading
Each sale = 1% TDS + 30% tax. Minimize sell transactions to reduce TDS drain.
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Claim All Direct Costs
Transaction fees, gas fees, network fees - document everything to reduce taxable profit.
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Report Accurately
IT Dept has exchange data. Under-reporting = notice + 200% penalty. Always disclose.
Conclusion
India's crypto tax regime is among the world's harshest: 30% flat tax, 1% TDS, no loss offset, and aggressive enforcement. If you traded crypto in FY 2024-25, report it in Schedule VDA, claim TDS credit from Form 26AS, and pay the balance by July 31, 2025. Unreported crypto income is a ticking tax bomb - IT Department already has your exchange data. Disclose, pay, sleep peacefully.