India has reaffirmed its 30% tax on income from virtual digital assets (VDAs) and the 1% tax deducted at source (TDS) on qualifying transfers. At the same time, the government has expanded transaction reporting requirements for prescribed crypto entities, effective from April 1, 2026.
The Income Tax Department’s new VDA explainer consolidates the tax, TDS, and reporting provisions into a single document. It also clarifies which digital assets are covered and outlines penalties for non-compliance by reporting entities.
India Keeps 30% VDA Tax and 1% TDS
According to the Income Tax Department, income from transferring a VDA remains taxable at a flat 30% rate, plus applicable surcharge and cess. The new reporting framework does not alter this rate or the method for calculating taxable income.
Under Section 115BBH, taxpayers may only deduct the cost of acquiring the asset. Other expenses are not allowed, and VDA losses cannot be offset against other income or carried forward to a later financial year.
Section 194S continues to mandate 1% TDS on payments made to Indian residents for VDA transfers. For specified individuals and Hindu Undivided Families, the annual threshold is Rs. 50,000; for others, it stands at Rs. 10,000.
VDA Definition Includes Crypto Assets and Certain NFTs
The VDA definition covers cryptocurrencies, certain non-fungible tokens (NFTs), and other notified digital assets. It also includes digital representations of value that use a cryptographically secured distributed ledger or similar technology to validate transactions.
However, Indian currency, foreign currency, and India’s central bank digital currency (CBDC) are not classified as VDAs. The government may exclude additional digital assets through official notifications.
Exclusions include gift cards, vouchers, reward points, loyalty cards, and subscriptions to websites or digital platforms. Some NFTs are also excluded when their transfer legally passes ownership of an underlying physical asset.
Crypto Reporting Rules Take Effect
Section 285BAA introduced a separate reporting duty for prescribed entities handling crypto-asset transactions. These entities must provide transaction information to the Income Tax Department in the required form, within the specified period, and through the designated filing process.
The Income-tax Act, 2025, which took effect on April 1, 2026, now carries the reporting requirement under Section 509. Thus, Section 285BAA refers to the earlier framework, while Section 509 contains the corresponding rule under the current act.
The reporting duty does not replace individual tax filings. Crypto investors must continue reporting their transfers through Schedule VDA in their income tax returns and maintain records of acquisition costs, sale values, swaps, and other transfers.
Penalties for Delayed or Inaccurate Reports
A prescribed entity that misses the reporting deadline may face a penalty of Rs. 200 for each day the failure continues. Authorities may also impose a Rs. 50,000 penalty if an entity submits inaccurate information, fails to correct an identified error, or does not complete required checks.
When authorities identify a defective statement, they may direct the reporting entity to correct it. Entities must also amend information when they discover errors after filing. These requirements place the reporting responsibility primarily on exchanges, service providers, and other prescribed intermediaries.
The new framework increases transaction information available to the tax department but does not create a new tax for investors. The 30% VDA tax, 1% TDS, deduction limits, and loss-offsetting restrictions remain unchanged.
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