Published 9 May 2026
Compliance Checklist for Digital Assets
Virtual Digital Assets -- cryptocurrencies, Non-Fungible Tokens, specified digital tokens -- are taxed under one of the most punitive frameworks in Indian income-tax: 30% flat with NO offset / set-off / carry-forward of losses. Finance Act, 2022 introduced section 2(47A) (definition) plus section 115BBH (taxation) plus section 194S (tax-deducted-at-source). Finance Act, 2024 and Finance Act, 2025 have refined the framework. This compliance checklist for Virtual Digital Asset / cryptocurrency traders, investors, and businesses ensures you stay on the right side of the law for tax year 2025-26 and 2026-27.
The Virtual Digital Asset Framework -- Three Interconnected Sections
Section | Function |
|---|---|
Section 2(47A) -- Definition | Any code / number / token (not Indian or foreign currency) generated through cryptographic means providing digital representation of value. Non-Fungible Tokens included. Specified excluded items by Central Board of Direct Taxes Notification (gift cards, vouchers, mileage points, subscriptions). |
Section 115BBH -- Taxation | 30% flat tax on Virtual Digital Asset gains; cost of acquisition only (no indexation; no other expense); no set-off against any other income; no carry-forward of loss. |
Section 194S -- Tax-Deducted-at-Source | 1% by exchange / payer on transfer above threshold (INR 10,000 individual specified / INR 50,000 others). |
Cost of Acquisition -- The Only Deduction
From the consideration on transfer of a Virtual Digital Asset, the ONLY deduction permitted is COST OF ACQUISITION. Other expenses (transfer fees, exchange brokerage, wallet fees, gas fees) are NOT deductible -- though some practitioners include them as part of cost of acquisition (the Central Board of Direct Taxes has not formally clarified).
For Virtual-Digital-Asset-to-Virtual-Digital-Asset exchange: Fair Market Value of received Virtual Digital Asset equals the consideration; cost of given Virtual Digital Asset equals the cost. Each transfer is separately assessed. Mining / staking Virtual Digital Assets is complex -- some treat as Profits and Gains of Business or Profession (mining as activity), some as Other Sources / Other Income at receipt date.
Tax-Deducted-at-Source Compliance -- Section 194S
1% tax-deducted-at-source on every Virtual Digital Asset transfer above threshold. Exchanges must deduct on every transaction; recorded in Form 26QF / 26QG quarterly statements. Peer-to-peer transfers: self-deposit by transferor required. Failure: 1.5% per month interest plus section 271H penalty.
Threshold | Threshold Amount per Financial Year |
|---|---|
General (companies / firms / others) | INR 50,000 |
Individual / Hindu Undivided Family (specified) | INR 10,000 |
Form 26AS / Annual Information Statement reflects section 194S tax-deducted-at-source. If you bought / sold cryptocurrency on an Indian exchange (CoinDCX / WazirX etc.): tax-deducted-at-source is automatic. International exchange (Binance / Coinbase): you must self-deposit tax-deducted-at-source; Finance Act, 2024 enforcement tightened.
No Set-off / Carry-Forward -- Practical Implications
If you have INR 5 lakh cryptocurrency LOSS in financial year 2024-25 and INR 8 lakh cryptocurrency profit in financial year 2025-26: tax on financial year 2025-26 profit at 30% equals INR 2.4 lakh. The financial year 2024-25 loss CANNOT offset the financial year 2025-26 gain. Different from regular capital gains where loss carries forward for 8 years.
Practical Consequence Virtual Digital Asset is a PURE GROSS-INCOME tax. No netting; no time-shifting. This makes day-trading particularly punitive -- every winning trade is taxed at 30% while losing trades give no relief. Strategic: trade infrequently; hold long-term where possible. |
Reporting in the Income-tax Return -- Schedule VDA
Income-tax Return Form 2 / Form 3 (post Finance Act, 2022) has Schedule VDA -- dedicated to Virtual Digital Asset transactions. For each transaction:
- Date of transfer.
- Cost of acquisition.
- Consideration.
- Income / loss (gross).
Aggregate annual Virtual Digital Asset income equals tax at 30% under section 115BBH. Section 194S tax-deducted-at-source credit is claimed against this. Cross-check Schedule VDA with broker / exchange statements plus Annual Information Statement / Taxpayer Information Summary. Foreign Virtual Digital Asset holdings: separately reported in Schedule FA (Foreign Asset). Failure: Black Money Act penalty INR 10 lakh per year.
Compliance Checklist for Virtual Digital Asset Holders
- Document EVERY Virtual Digital Asset transaction: date, type, exchange, transaction identifier, consideration, cost, tax-deducted-at-source deducted.
- Maintain a Virtual Digital Asset register: chronological log of buys, sells, exchanges, gifts, receipts.
- Reconcile with exchange statements plus Form 26AS / Annual Information Statement / Taxpayer Information Summary.
- For Virtual-Digital-Asset-to-Virtual-Digital-Asset exchange: Fair Market Value documentation.
- For mining / staking: separate income recognition plus tax treatment.
- Foreign exchange holdings: Schedule FA disclosure mandatory for Resident and Ordinarily Resident.
- Gifts above INR 50,000: section 56(2)(x) inclusion in receiver's hands at Fair Market Value.
- Non-Fungible Tokens: same Virtual Digital Asset treatment unless excluded by Central Board of Direct Taxes Notification.
- Decentralised Finance / yield farming: emerging area; consult specialist.
- Evidence-based filing: not aggregate calculations.
Key Takeaways
- Virtual Digital Asset: 30% flat tax under section 115BBH; no offset / set-off / carry-forward.
- Cost of acquisition only deduction; other expenses NOT deductible.
- 1% tax-deducted-at-source under section 194S on transfers above INR 50,000 (general) / INR 10,000 (individual specified).
- International exchanges: peer-to-peer self-deposit tax-deducted-at-source required.
- Income-tax Return Schedule VDA: dedicated reporting; transaction-level detail.
- Foreign Virtual Digital Asset: Schedule FA plus Black Money Act compliance.
- Day-trading punitive: every win taxed; losses not relieved.
- Virtual-Digital-Asset-to-Virtual-Digital-Asset exchange: Fair-Market-Value-based mutual valuation.
Disclaimer: This article is for general information only. It does not constitute tax / legal advice. Please consult a qualified Chartered Accountant or tax practitioner for advice specific to your circumstances. The legal position is current as of FA 2024 (No. 2) / FA 2025; subsequent amendments and CBDT notifications may modify the position.