Taxation of Cryptocurrency & NFTs: Reporting, TDS, and Compliance
Introduction
Cryptocurrency and NFTs (Non-Fungible Tokens) are no longer niche—millions of Indians trade or invest in them. But with this rise comes strict tax laws and compliance obligations. The Income Tax Act (Sections 115BBH & 194S) and RBI/FEMA regulations now govern Virtual Digital Assets (VDAs).
In this blog, we’ll explain how crypto and NFTs are taxed, the role of TDS, reporting obligations, and compliance requirements. Whether you’re a trader, investor, or startup dealing with digital assets, understanding these rules is essential to avoid penalties.
Taxation Framework for Crypto & NFTs
- Crypto and NFTs are defined as Virtual Digital Assets (VDAs) under the Income Tax Act.
- Introduced in Budget 2022, the framework applies from 1st April 2022 onwards.
- Covers buying, selling, exchanging, gifting, or transferring digital assets.
Section 115BBH: Flat 30% Tax on Digital Assets
- Applicable to: Individuals, HUFs, firms, companies, etc.
- Flat tax rate of 30% on gains from crypto/NFT transactions.
- No basic exemption benefit—even if total income is below ₹2.5 lakh, the 30% tax applies.
- No deductions allowed except cost of acquisition.
- Tax applies to both Indian and overseas exchanges if the taxpayer is Indian resident.
Section 194S: 1% TDS on Transfers
- Effective from 1st July 2022.
- 1% TDS is deducted on payment for transfer of crypto/NFTs if:
- Transaction > ₹50,000 in a year (for individuals/HUFs with business turnover < ₹1 crore or profession < ₹50 lakh).
Transaction > ₹10,000 in a year for others.
- Exchanges are responsible for deducting TDS on behalf of users.
- Non-deduction or delay can attract penalties.
Losses & Set-off Rules
- Losses from crypto/NFT transactions cannot be set off against other income (like salary, business, or capital gains).
- Losses also cannot be carried forward to future years.
- Example: If you make ₹1 lakh profit on Bitcoin but lose ₹50,000 on Ethereum, you must pay tax on full ₹1 lakh without adjusting the loss.
Reporting Requirements for Crypto Holders
- All crypto/NFT holdings must be disclosed in Income Tax Returns (ITR forms) under Schedule VDA.
- Details required:
Date of acquisition and transfer
Sale consideration
Cost of acquisition
Gains reported under Section 115BBH
- Foreign exchange compliance: If crypto wallets are maintained abroad, they may trigger FEMA and Black Money Act reporting.
Regulatory Aspects under FEMA & RBI
- RBI has not legalized cryptocurrency as “currency” but allows trading as assets.
- FEMA applies to cross-border crypto transactions—investment in overseas exchanges may need LRS (Liberalized Remittance Scheme) compliance.
- Payments for NFTs with international counterparties require FEMA clearance.
Case Study: Indian Crypto Trader in 2025
Scenario:
- A Kolhapur-based consultant invests ₹5 lakh in Bitcoin on an international exchange.
- After 6 months, sells for ₹8 lakh.
- Profit = ₹3 lakh.
Tax Treatment:
- Section 115BBH → ₹3 lakh × 30% = ₹90,000 tax (plus surcharge + cess).
- If sold via Indian exchange, 1% TDS under Section 194S already deducted.
- Losses in any other token (e.g., Solana) cannot reduce taxable income.
Best Practices for Crypto Tax Compliance
- Maintain records: Use portfolio trackers to log transactions.
- Check TDS credits: Ensure 1% TDS reflects in Form 26AS.
- Avoid cash dealings: Use regulated Indian exchanges for compliance.
- Plan withdrawals: Consider tax impact before selling large holdings.
- Consult professionals: For FEMA, RBI, and tax audits involving VDAs.
FAQs
Q1. Is cryptocurrency legal in India?
Yes, but it is not recognized as legal tender. It is treated as a taxable asset.
Q2. What is the tax rate on NFT sales?
Same as cryptocurrency—30% flat tax under Section 115BBH.
Q3. Can I claim expenses like internet or electricity for crypto mining?
No, only cost of acquisition is allowed as deduction.
Q4. How is crypto received as a gift taxed?
Taxable as income from other sources if value exceeds ₹50,000, and later taxed again at 30% on transfer.
Q5. Do I need to pay GST on crypto trading?
Currently, GST applies on exchange services, not on trading itself. Businesses accepting crypto may face GST obligations.
Conclusion
The taxation of cryptocurrency and NFTs in India is strict and evolving. With Section 115BBH imposing a 30% tax, Section 194S mandating TDS, and loss set-off restrictions, investors must carefully plan their trades. Additionally, FEMA and RBI guidelines add another layer of compliance for cross-border dealings.
👉 At Verotus LLP, we help individuals, traders, and businesses navigate crypto taxation, TDS filing, and compliance under Indian laws.
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