Tax on Crypto and Other Virtual Digital Assets

A person who sells bitcoin at a profit, and another token at a loss in the same year, usually expects to pay tax on the net gain. The Act does not allow it. The profit is taxed at a flat 30 per cent. The loss is ignored: it cannot be set off against the profit on the other token, against salary or against anything else, and it cannot be carried forward. Fees paid to the exchange are not deducted either. Only the cost of acquiring the asset comes off. This guide sets out what counts as a virtual digital asset, how the income is computed and taxed, and which Act applies to which year.

Which Act applies

• Transfers up to 31 March 2026 (financial year 2025-26 and earlier, so assessment year 2026-27 and earlier) fall under section 115BBH of the Income-tax Act, 1961. That section applies from assessment year 2023-24. It was inserted by the Finance Act, 2022 with effect from 1 April 2023.
• Transfers from 1 April 2026 (tax year 2026-27 onwards) fall under section 194(1) of the Income-tax Act, 2025, Table Sl. No. 4.

Section 536 of the 2025 Act repeals the 1961 Act. Under section 536(2)©, proceedings for any tax year beginning before 1 April 2026 continue under the 1961 Act, including assessments, penalties and appeals. A return for assessment year 2026-27, filed in 2026, is therefore a 1961 Act return.

What is a virtual digital asset

The definition is in section 2(47A) of the 1961 Act and section 2(111) of the 2025 Act. It has four limbs:

• (a) any information, code, number or token, other than Indian or foreign currency, “generated through cryptographic means or otherwise”. It must provide “a digital representation of value exchanged with or without consideration”. It must carry the promise or representation of inherent value, or function as a store of value or a unit of account. It must be capable of being “transferred, stored or traded electronically”.
• (b) a non-fungible token or any other token of a similar nature.
• © any other digital asset the Central Government notifies.
• (d) “any crypto-asset being a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions”. This applies whether or not the asset already falls within (a), (b) or ©.

Clause (d) is new. The Finance Act, 2025 inserted it into section 2(47A) with effect from 1 April 2026, and the 2025 Act carries it from the start. It therefore does not apply to assessment year 2026-27 or earlier years. In both Acts the Government may exclude a digital asset by notification. For the purposes of clause (b), a “non-fungible token” means only what the Government notifies.

How the income is taxed

Section 115BBH(1) makes the tax payable “the aggregate of” two amounts:

• tax at 30 per cent on the income from transfer of the virtual digital asset, and
• tax on the rest of the total income as if that income were not there.

Column D of Sl. No. 4 of section 194(1) of the 2025 Act sets the same 30 per cent.

Three restrictions follow. They are worded the same in section 115BBH(2) and in column E of Sl. No. 4.

1. No deductions except cost. The Act says “no deduction in respect of any expenditure (other than cost of acquisition, if any) or allowance or set off of any loss shall be allowed” in computing this income. Brokerage, exchange fees, interest on borrowed funds and similar costs are not deducted.
2. Losses cannot be set off. The section says no set-off of a loss from transfer of a virtual digital asset “shall be allowed against income computed under any provision of this Act”. Read with the first restriction, a loss on one asset is not netted against a gain on another.
3. Losses cannot be carried forward. The section says a loss “shall not be allowed to be carried forward to succeeding assessment years”. The 2025 Act uses “tax years” in place of “assessment years”.

The rate applies to income from the transfer of a virtual digital asset under any head. Section 115BBH(3), and section 194(2)(n) of the 2025 Act, apply the general definition of “transfer” to any virtual digital asset “whether capital asset or not”. The rate is the same whether the asset is held as an investment or as stock-in-trade.

Surcharge and health and education cess are added at the rates in the Finance Act for the year. Section 115BBH(1)(b) applies the normal slab rates only to income other than the virtual digital asset income. Section 111A, for short-term gains on listed shares, has a proviso for resident individuals and HUFs: where other income falls short of the amount not chargeable to tax, the shortfall reduces the gain. Section 115BBH has no such proviso, and neither does Sl. No. 4. An unused basic exemption therefore does not reduce virtual digital asset income.

Rebate under section 87A does not reach this tax

For a resident individual in the new regime, the question is whether the rebate under section 87A cancels the 30 per cent tax when total income is small.

In Ankit Kabra v. ITO (ITAT Surat, 23 December 2025, ITA No. 873/SRT/2025, assessment year 2024-25), the assessee was in the new regime. He declared total income of Rs 4,80,800, which included Rs 2,02,993 of gains from virtual digital assets. He claimed the full Rs 25,000 rebate under the proviso to section 87A. The Centralised Processing Centre refused it, and the Tribunal agreed. Once the virtual digital asset income was taken out, the remaining income was below the taxable limit, so the only tax was the 30 per cent tax under section 115BBH. The Tribunal held that sections 115BAC and 115BBH “plays in different area”. Income taxed under section 115BBH is “certainly not covered under section 115BAC”, and so the rebate in the proviso to section 87A was not available against it.

In Kanhaiya Lal Panchal v. ITO (ITAT Indore, 16 January 2026, ITA No. 702/Ind/2025, assessment year 2024-25), the Tribunal allowed the rebate against tax on short-term and long-term capital gains under sections 111A and 112. It followed earlier decisions on that point. On the Rs 45 of tax on virtual digital asset income in the same return, the assessee’s representative did not press the claim, and the Tribunal upheld the denial. This search found no decision that allows the rebate against tax under section 115BBH.

From assessment year 2026-27 the statute addresses the point directly. The Finance Act, 2025 added a second proviso to section 87A: the rebate “shall not exceed the amount of income-tax payable as per the rates provided in sub-section (1A) of section 115BAC”. Section 156(3) of the 2025 Act ties the rebate in the same way to tax at the section 202(1) rates.

Years before section 115BBH

Section 115BBH applies from assessment year 2023-24. For earlier years, gains on crypto were taxed under the ordinary provisions. The question then was which head they fell under.

In Raunaq Prakash Jain v. ITO (ITAT Jodhpur, 28 November 2024, ITA No. 01/Jodh/2024, assessment year 2021-22), a salaried individual had bought bitcoin in 2015-16 for Rs 5,05,155. He sold it in 2020-21 for Rs 6,69,49,620 and offered the gain as long-term capital gain. He claimed exemption of Rs 4,95,68,910 under section 54F for the purchase of a house. The Assessing Officer held that bitcoin was not a capital asset before the 2022 amendments. He taxed the gain of Rs 6,62,96,741 as income from other sources and denied section 54F. The Tribunal reversed this. It held that “property of any kind” in section 2(14) included the assessee’s right in bitcoin, so the gain was a capital gain. It noted that the 2022 scheme was expressly prospective. It also relied on the assessee’s profile as an investor rather than a trader, and on two assessments in which the Department had itself treated crypto gains as capital gains. Section 54F was allowed. This search found no further appeal against the decision. The finding was on the facts of a long-held investment. A person who traded frequently could face a different question, about whether the activity was a business.

In Meenakshi Tejas Patel v. ITO (ITAT Pune, 20 July 2026, ITA No. 409/PUN/2026, assessment year 2019-20), the Assessing Officer had disallowed Rs 1,85,000 of selling expenses against a crypto profit of Rs 25,51,080, citing section 115BBH(2)(a). The assessee accepted the disallowance to settle the matter. A penalty of Rs 1,15,440 was then levied under section 270A for under-reporting. The Tribunal deleted the penalty, because section 115BBH applies only from assessment year 2023-24 (Meenakshi Tejas Patel v. ITO).

What has changed from 1 April 2026

The tax itself has not changed. The 30 per cent rate, the cost-only deduction and the bar on set-off and carry-forward are carried over word for word into Sl. No. 4 of section 194(1). The Finance Act, 2026 does not amend that entry or section 2(111). The changes are elsewhere:

• The definition now includes the clause (d) crypto-asset limb.
• Reporting by crypto exchanges is now in force. Section 509 and rules 241 to 244 of the Income-tax Rules, 2026 require reporting for calendar years from 2026. Section 446, substituted by the Finance Act, 2026, carries a penalty for failure. Reporting Crypto: Schedule VDA and the AIS covers this.
• TDS has moved from section 194S to section 393(1) [Table: Sl. No. 8(vi)]. The Finance Act, 2026 changed the TAN exemption and the guidelines power. See TDS on Crypto Transfers.

Working out the figure

For each transfer, the income is the consideration received less the cost of acquisition, and nothing else. A profit on each asset is added up. A loss on any asset counts as nil. The return form makes this explicit: Schedule VDA asks for “Income from transfer of Virtual Digital Assets (enter nil in case of loss)”. The CBDT’s JSON schema for ITR-2 and ITR-3 for assessment year 2026-27 does not accept a negative figure in that column.

The consideration may be received in another virtual digital asset rather than in rupees, for example when one token is swapped for another. The exchange is still a transfer, and the consideration is the value of what is received. The Act does not lay down a valuation method for that leg. The 2026 Rules prescribe a method only for exchanges reporting under rule 243, not for computing income.

Where tax has been deducted on the transfer, the credit is claimed in the return like any other TDS. The income itself must still be reported in full.

Summary

1. Fix the Act by the date of transfer. Transfers up to 31 March 2026 fall under section 115BBH. Transfers from 1 April 2026 fall under section 194(1) [Table: Sl. No. 4] of the 2025 Act.
2. Check that the asset is a virtual digital asset under section 2(47A) or section 2(111). The crypto-asset limb applies from 1 April 2026.
3. For each transfer, deduct only the cost of acquisition from the consideration.
4. Treat each loss as nil. It is not set off against any income and is not carried forward.
5. Tax the total at 30 per cent plus surcharge and cess. The rebate under section 87A does not reduce this tax.
6. Claim any TDS deducted on the transfers, and report the transfers in Schedule VDA.

The next guide, TDS on Crypto Transfers, covers the 1 per cent deduction on the price paid for a virtual digital asset.