If you sold, swapped, or even spent crypto during FY 2025-26 and you are a salaried filer who normally files a simple return, the rules have changed for you whether you noticed or not. Crypto tax in India is now a separate, dedicated regime — not a footnote inside capital gains, not optional, and not something the department forgets about. The Income Tax Department already has your transaction trail through 1% TDS data and exchange reports flowing into AIS. This post explains exactly how crypto income is taxed, where it is reported in the ITR, and the specific mistakes salaried filers tend to make.
Quick answer
Profits from transferring crypto are taxed at a flat 30% under Section 115BBH, regardless of holding period or your slab. A 1% TDS under Section 194S sits on top, and everything must be reported transaction-wise in Schedule VDA of ITR-2 or ITR-3.
Before filing, check:
- Did you have any crypto transfer — sale, swap, or spending — during the FY?
- Have you downloaded your full transaction statement from every exchange you used?
- Have you reconciled the 1% TDS visible in AIS with what the exchange deducted?
What counts as a Virtual Digital Asset
The Income Tax Act 1961 introduced a specific definition for Virtual Digital Asset (VDA) under Section 2(47A) through the Finance Act 2022. In plain language, a VDA is any cryptographically generated token or digital representation of value that can be transferred and traded. This covers Bitcoin, Ethereum, Solana, USDT and other stablecoins, most NFTs, and any other digital asset the government later notifies.
What is not a VDA: Indian or foreign currency, gift cards, vouchers, and digital gold backed by physical reserves through SEBI-regulated platforms.
The reason this matters: the moment something is classified as a VDA, the special 30% rate kicks in. There is no escape route through “this is a small token” or “this was just a swap, not a sale.”
How crypto tax in India works: the 30% rule
Section 115BBH of the Income Tax Act 1961 is the centre of crypto tax in India. The mechanics are simple and unforgiving:
- Rate: 30% flat tax on income from transfer of any VDA, plus 4% health and education cess and applicable surcharge.
- Holding period: Irrelevant. Whether you held for 10 days or 10 years, the rate is the same.
- Deductions allowed: Only the cost of acquisition. Exchange fees, gas fees, internet bills, laptop costs — none of these reduce the taxable amount.
- Loss set-off: Crypto losses cannot be set off against any other income, including gains from other crypto. A loss on Solana cannot reduce a gain on Bitcoin in the same year.
- Loss carry-forward: Not allowed. The loss simply dies at the end of the year.
A simple example
Rahul, a salaried software engineer, bought ₹2,00,000 worth of Bitcoin in May 2025. He sold it in February 2026 for ₹2,80,000. Around the same time, he had also bought ₹1,00,000 worth of a smaller token that he sold for ₹70,000.
His Bitcoin profit is ₹80,000. His other token loss is ₹30,000. Most filers assume their net taxable gain is ₹50,000. That is wrong. The ₹30,000 loss cannot be set off. The full ₹80,000 is taxed at 30%, which is ₹24,000 plus 4% cess of ₹960 — a total of ₹24,960. The ₹30,000 loss is gone.
Triggers that count as “transfer”
A taxable transfer happens not only when you sell crypto for rupees. It also happens when you:
- Swap one crypto for another, including stablecoin trades (BTC to USDT counts).
- Use crypto to pay for goods or services.
- Gift crypto to a non-relative — though this is taxed in the recipient’s hands under Section 56(2)(x) of the Income Tax Act 1961 if the value crosses ₹50,000, at slab rates.
Holding crypto without transferring it is not a taxable event. Buying and never selling does not trigger anything under Section 115BBH.
The 1% TDS on Crypto layer under Section 194S
This is where most salaried investors get confused. Section 194S adds a 1% TDS on the gross consideration of every VDA transfer, deducted by the buyer or, on Indian exchanges, by the exchange itself.
Two thresholds apply:
- ₹50,000 per year for “specified persons” — broadly, individuals and HUFs without business income, or with business turnover up to ₹1 crore or professional receipts up to ₹50 lakh. Most salaried filers fall here.
- ₹10,000 per year for everyone else.
The 1% TDS is not your final tax. It is an advance deposit, and the full 30% tax under Section 115BBH still applies to your profit. When you file, the TDS shows up in AIS and Form 26AS, and you claim credit for it against your final liability.
Why this catches people out
Many traders believe “1% TDS got deducted, so my tax is done.” It is not. Consider Priya, who sold ₹5,00,000 of crypto at a profit of ₹1,00,000. The exchange deducted ₹5,000 as 1% TDS on the gross sale value. Her actual tax liability under Section 115BBH is 30% of ₹1,00,000 = ₹30,000 plus cess. After claiming the ₹5,000 TDS credit, she still owes ₹25,000 plus cess. If she does not pay it by 31 March via advance tax, interest under Sections 234B and 234C applies.
Which ITR form to use and where Schedule VDA fits
ITR-1 (Sahaj) and ITR-4 cannot be used if you have any crypto income. The Income Tax e-filing portal explicitly excludes VDA income from these simpler forms.
For most salaried filers with crypto activity:
- ITR-2 is the right form if you treat crypto activity as investment (capital gains presentation). This is the cleanest route for occasional buy-and-sell behaviour alongside salary income.
- ITR-3 is needed if crypto trading rises to the level of a business — high frequency, organised setup, books of account, treating it as your trading activity.
Either way, Schedule VDA must be filled. It asks for transaction-wise details: date of acquisition, date of transfer, cost of acquisition, sale consideration, and resulting income. Each transaction is a separate row. If you made 200 trades in the year, you have 200 rows.
The 30% tax flows automatically from Schedule VDA into the special-rate computation. Salary income continues to be taxed at slab rates separately — the two do not mix.
Old regime, new regime, and why it does not change crypto tax in India
A common question: does the new tax regime under Section 115BAC offer any relief on crypto?
No. The 30% flat rate under Section 115BBH applies regardless of which regime you choose. The regime choice only affects how your salary, house property, and other slab-rate incomes are taxed. Your crypto income is calculated separately at 30% in both regimes, then added to your final tax liability. Switching to the new regime does not reduce crypto tax even slightly.
The same continuity applies under the Income Tax Act 2025, which retains the VDA-specific framework substantially as it stands today. The numbering of sections may shift over time, but the substance — flat 30%, no set-off, no carry-forward, mandatory Schedule VDA reporting — is unchanged.
What to do before you file
Here is the practical sequence for a salaried filer with crypto activity in FY 2025-26.
The flowchart covers the typical salaried investor. Two variations to keep in mind: if you also received crypto as a gift from a non-relative above ₹50,000, that piece is taxed at slab rates under Section 56(2)(x), not at 30%, and goes under Income from Other Sources, not Schedule VDA. If you earned staking rewards or airdrops, the receipt is taxed at slab rates on the fair market value at receipt; the later sale of those tokens is then taxed under Section 115BBH, with the FMV-at-receipt becoming the cost of acquisition.
When you should not delay or get creative
Some practical traps that catch salaried filers:
- Do not use ITR-1. If you have any VDA transfer in the year, the simpler salaried form is closed to you. Filing ITR-1 with crypto activity in AIS will likely get the return treated as defective.
- Do not skip Schedule VDA assuming TDS is enough. The 1% TDS is partial. The 30% liability remains. Skipping Schedule VDA when AIS shows VDA activity is one of the cleanest ways to invite a notice.
- Do not net losses against gains. Tax software that shows a “net” figure may be misleading. Each profitable transaction is taxed; each loss is ignored. Verify the figure that flows into the 30% bucket.
- Do not claim exchange fees, internet, or laptop costs as deductions. Section 115BBH allows only the cost of acquisition. Anything else is disallowed.
- Do not assume you are below the radar. Indian exchanges report transactions, and the 1% TDS trail is visible in AIS. Detection is automated.
Documents and records to keep ready
Before you sit down to file, gather:
- Year-end transaction statements from every Indian and foreign exchange used
- Wallet transaction history if you self-custody
- Form 26AS and AIS downloaded from the Inco
- me Tax e-filing portal
- A reconciled list of buy and sell trades with date, quantity, INR value, and TDS deducted
- For staking, mining, or airdrops: dates of receipt and FMV in INR on each receipt date
- Bank statements showing INR deposits to and withdrawals from exchanges
- Form 16 from your employer for the salary portion of the return
Final takeaway
Crypto tax in India is not friendly, but it is predictable. The structure is a flat 30% on transfer income with no set-off, no loss carry-forward, and no deductions beyond cost. The 1% TDS is a tracking mechanism, not a substitute for paying the full tax. The choice between ITR-2 and ITR-3 depends on whether your activity is investment or trading-as-business, but both routes pass through Schedule VDA. Get the records right, file the correct form, claim the TDS credit, and pay the balance tax — that is the entire compliance picture for a salaried filer with crypto activity.
Confused about whether your crypto activity counts as investment or business, or unsure how to fill Schedule VDA correctly for your trades? eTaxMate can help you reconcile your transactions, choose the right ITR form, and file your return with crypto income reported correctly.
This blog post is for general information only and does not constitute professional advice. Tax laws are subject to change and their application depends on individual facts and circumstances. Readers should consult a qualified professional before taking any action based on this content. eTaxMate accepts no liability for any action taken based on the information in this post.
Frequently Asked Questions
1. Is crypto legal in India and do I really have to pay tax on it?
Trading crypto is legal in India, and the tax rules are clearly defined. Profits from transferring any Virtual Digital Asset, including cryptocurrencies and most NFTs, are taxed at a flat 30% under Section 115BBH of the Income Tax Act 1961. A 1% TDS under Section 194S also applies on most transfers. There is no exemption based on small transaction sizes, and exchange data already flows to the tax department.
2. Can I set off my crypto loss against my salary income or other capital gains?
No. Section 115BBH expressly prohibits setting off losses from any Virtual Digital Asset against any other income, including salary, capital gains, or even gains from another crypto. The loss cannot be carried forward to next year either. If you make a profit on Bitcoin and a loss on Ethereum in the same year, the full Bitcoin profit is taxed at 30% and the Ethereum loss is ignored entirely.
3. Which ITR form should a salaried person use for reporting crypto in India?
ITR-1 and ITR-4 cannot be used if you have any crypto transfer during the year. Most salaried filers with occasional buy-and-sell activity use ITR-2, treating the income as capital gains. If your trading is frequent, organised, and business-like with proper books and infrastructure, ITR-3 is the appropriate form. Either way, Schedule VDA must be filled with transaction-wise details.
4. I only swapped one crypto for another and never converted to rupees. Is that taxed?
Yes. A swap from one Virtual Digital Asset to another, including crypto-to-stablecoin trades like Bitcoin to USDT, is treated as a transfer under Section 115BBH. The fair market value of what you received in INR terms becomes the sale consideration, and the difference from your original cost of acquisition is taxed at 30%. There is no exemption for swaps that stay within crypto.
5. I had only 1% TDS deducted on my crypto sales. Is my tax done?
No. The 1% TDS under Section 194S is only an advance payment, not the final tax. Your actual liability is 30% on the profit, plus 4% cess and any applicable surcharge. The TDS gets adjusted against this final liability when you file your return. In a profitable trade, balance tax will almost always remain payable, and unpaid amounts attract interest under Sections 234B and 234C.
6. Does the new tax regime reduce my crypto tax in India?
No. The 30% flat rate under Section 115BBH applies in both the old and new tax regimes. The regime choice only affects how your salary and other slab-rate incomes are taxed; it has no impact on crypto income, which is computed separately under its own special-rate framework. Switching regimes is therefore not a strategy for reducing crypto tax.