Taxation of Virtual Digital Assets under Income-tax Act, 2025

Introduction

The rise of cryptocurrencies, NFTs, and other digital assets has transformed the way people invest and transact. Recognising this shift, the Income-tax Act, 2025 continues to regulate the taxation of Virtual Digital Assets (VDAs) with greater structural clarity. While the charging principles remain strict, the new Act reorganises provisions to improve readability and compliance.

This blog explains how Virtual Digital Assets are taxed under the Income-tax Act, 2025 and what taxpayers, traders, and professionals must understand.

What Are Virtual Digital Assets (VDAs)?

Under the Income-tax Act, 2025, Virtual Digital Assets broadly include:

Cryptocurrencies such as Bitcoin, Ethereum, etc.

Non-Fungible Tokens (NFTs)

Any other digital asset notified by the Government

These assets exist in digital form and rely on cryptographic or distributed ledger technology.

Taxability of Income from VDAs

Income arising from the transfer of Virtual Digital Assets is taxable under the Income-tax Act, 2025. The law follows a special taxation regime, distinct from normal capital gains provisions.

Key points include:

Income from transfer of VDAs is taxable at a flat rate

No benefit of slab rates

Tax applies irrespective of holding period

Allowed and Disallowed Deductions

The Act permits only the cost of acquisition as a deduction while computing income from VDAs.

The following are not allowed:

Mining expenses

Transaction fees (other than acquisition cost)

Internet, electricity, or platform charges

Any set-off of losses

This makes VDA taxation significantly stricter compared to other asset classes.

Set-off and Carry Forward of Losses

Loss arising from the transfer of Virtual Digital Assets:

Cannot be set off against any other income

Cannot be carried forward to future years

Each transaction stands on its own for tax purposes.

TDS on Transfer of Virtual Digital Assets

The Income-tax Act, 2025 continues the requirement of Tax Deducted at Source (TDS) on payment for transfer of VDAs.

Key highlights:

TDS applies at the time of payment or credit

Applicable even on peer-to-peer transactions

Buyer has the responsibility to deduct and deposit TDS

This provision helps the tax department track crypto transactions.

Applicability to Residents and Non-Residents

Taxation of VDAs applies to:

Residents earning income from VDAs anywhere in the world

Non-residents if income accrues or arises in India

The scope is aligned with the residential status and territorial provisions of the Act.

Compliance and Reporting Requirements

Taxpayers dealing in Virtual Digital Assets must:

Disclose VDA income in the Income-tax Return

Report TDS details correctly

Maintain transaction records and wallet statements

Non-disclosure may attract penalties and scrutiny under the new compliance framework.

Practical Impact on Investors and Traders

The Income-tax Act, 2025 sends a clear message:

VDAs are taxable and traceable

Speculative trading is discouraged through strict rules

Compliance is mandatory regardless of transaction size

Investors should plan transactions carefully and maintain proper documentation.

Conclusion

The taxation of Virtual Digital Assets under the Income-tax Act, 2025 is structured, strict, and technology-aware. While the Act simplifies section placement, the tax burden on VDAs remains high. Anyone dealing in cryptocurrencies or NFTs must understand these provisions to avoid penalties and ensure full compliance.

Written by:
Abhishek Gupta
Chartered Accountant
Office No. 19, Sagar Building, 4th Floor, Plot-327,
Narshi Natha Street, Masjid Bunder (West),
Mumbai – 400009
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