India’s Income Tax Bill, 2025 has recently introduced a legal framework for virtual digital assets (VDAs).Virtual digital assets (crypto assets) refer to any digital representation of value that can be digitally traded, transferred or used for payment.This is found in Section 2(111) and Section 92(5)(f) of the Income Tax Bill, 2025 and includes digital assets such as cryptocurrencies and non-fungible tokens (NFTs).India’s Bill for the first time treats VDAs (including cryptocurrencies and NFTs) as property and capital assets.The government ensures that they are taxed under standard property principles, preventing misuse of VDAs as unregulated financial instruments by classifying VDAs as capital assets.India has now agreed to treat VDAs as property or securities along with countries such as the UK, the US, Singapore and Australia.
Key provisions
- 30% tax will be levied on the transfer of VDAs.
- 1% TDS will be applicable on each transaction.
- Reporting will be mandatory, which will increase transparency and prevent financial abuse.
Virtual Digital Assets (VDAs)
- Definition: The Finance Act, 2022 defined VDAs by adding section 47A to section 2 of the Income Tax Act, 1961.
- Supreme Court view: Referring to the FATF report in the Internet and Mobile Association of India v. RBI case, Virtual Currency (VC) was described as a digital unit that can be a medium of exchange, a measure of value and a storage device, but is not a legal tender.
- Legal interpretation of VDAs: The court considered them as property, goods or means of payment and concluded that they can be viewed as intangible property or goods.
New Taxation on Virtual Digital Assets (VDAs) (Income Tax Bill, 2025)
- 30% tax to continue: The 30% tax imposed in 2022 on income from VDA transfers will continue.
Deductions not allowed
- Only the cost of acquisition is deductible.
- There will be no exemption on mining, transaction fees and platform commissions.
Example:
- If a person buys Ethereum for ₹5 lakh and sells it for ₹7 lakh, the ₹2 lakh profit will be taxed at 30%.
- No tax relief will be given on other expenses including transaction fees.
1% TDS will apply
- 1% TDS will be deducted on every VDA transaction, even in P2P transactions.
- The limit is ₹50,000 for small traders and ₹10,000 for others.
- Comparison with other countries: The tax system is stricter than the UAE, where some VDA profits are not taxed.
Challenges of taxation on virtual digital assets (VDA)
- Lack of overall regulations: Taxation is in place, but market regulation, investor protection, and enforcement are still weak.
- Lack of deductions: Crypto investors do not get any exemptions on transaction fees, mining costs, or commissions like other assets.
- High tax burden: The 30% flat tax is a disincentive for retail investors and crypto startups.
- Compliance Complexity: TDS and reporting requirements put additional burden on traders, exchanges, and businesses.
- Global crypto flows: Investors may move funds to low-tax countries, reducing India’s potential tax revenue.