Section 115BBH & 194S Statutory Architecture
- Flat 30% Tax u/s 115BBH: Profits from the transfer of any Virtual Digital Asset (cryptocurrencies, NFTs, tokens) are taxed at a flat rate of 30% plus applicable surcharge and 4% cess.
- Zero Loss Set-Off or Carry Forward: Section 115BBH(2) explicitly prohibits setting off losses from one crypto asset against gains from another, and crypto losses cannot be carried forward to future years.
- 1% TDS under Section 194S: Buyer is liable to deduct 1% TDS on crypto transfers exceeding ₹10,000 in a year (or ₹50,000 for specified individuals); foreign exchange and P2P transfers require Form 26QE compliance.
- Section 115BBJ Online Gaming Net Winnings: Net winnings from online gaming apps (poker, rummy, fantasy sports) are taxed at a flat rate of 30% with Section 194BA withholding upon withdrawal or year-end.
Accuracy Notes Before You Act
- Form 26QE Filing Requirement: P2P crypto buyers must deposit the 1% TDS and file Form 26QE challan-cum-statement on the TRACES portal within 30 days from the end of the transaction month.
- Schedule VDA Mandatory Disclosure: Every crypto transaction (date of acquisition, date of transfer, cost basis, sale consideration) must be reported line-by-line in Schedule VDA of ITR-2 or ITR-3.
- FIU-IND Anti-Money Laundering Compliance: Offshore exchanges operating in India must register with the Financial Intelligence Unit (FIU-IND) and comply with PMLA reporting standards.
- GST on Online Gaming: 28% GST applies on the full face value of bets placed at the entry level on online real money gaming platforms.
Documents and Facts to Keep Ready
- Exchange trading history logs and CSV transaction reports from Indian and international exchanges (CoinDCX, WazirX, Binance, Bybit).
- Decentralized wallet addresses (MetaMask, Ledger, Phantom) with complete on-chain transfer and staking records.
- Form 26AS/AIS reconciling 1% Section 194S TDS deducted by domestic exchanges.
- Bank statements showing fiat on-ramp deposits and off-ramp withdrawals.
Common Mistakes to Avoid
- Netting off losses in Bitcoin against profits in Ethereum (strictly prohibited under Section 115BBH).
- Failing to file Form 26QE when buying crypto via P2P mechanisms, attracting interest and non-deduction penalties.
- Omitting foreign exchange crypto accounts or on-chain assets in Schedule FA and Schedule VDA.
- Treating crypto staking rewards, airdrops, or mining proceeds as tax-free income instead of taxable other income.
Frequently Asked Questions
1. What is the tax rate on cryptocurrency gains in India under Section 115BBH?
Under Section 115BBH of the Income-tax Act, income from the transfer of any Virtual Digital Asset (VDA), including Bitcoin, Ethereum, and NFTs, is taxed at a flat rate of 30% plus applicable surcharge and 4% cess, with no basic exemption slab benefit.
2. Can I deduct mining costs, exchange fees, or internet expenses from crypto gains?
No. Section 115BBH(2) explicitly prohibits any deductions or expenses other than the direct cost of acquisition of the virtual digital asset. Exchange fees, gas fees, and mining hardware costs are non-deductible.
3. Can crypto losses be set off against other crypto gains or business income?
No. The Income-tax Act strictly prohibits setting off loss from the transfer of one crypto asset against profits from another crypto asset, and crypto losses cannot be carried forward to subsequent financial years.
4. Who is responsible for deducting the 1% TDS on crypto under Section 194S?
The buyer of the crypto asset is responsible for deducting 1% TDS. For transactions on compliant Indian exchanges, the exchange deducts TDS automatically. For P2P or foreign exchange transactions, the buyer must deduct TDS and file Form 26QE.
5. What is the threshold limit for TDS deduction under Section 194S?
TDS applies if total crypto transactions exceed ₹50,000 in a financial year for specified persons (individuals/HUFs not having business income, or with turnover under ₹1 Cr/₹50L), and ₹10,000 for all other taxpayers.
6. What is Form 26QE and when must it be filed for crypto TDS?
Form 26QE is a challan-cum-statement for depositing 1% TDS on P2P crypto transactions. It must be filed online on the TIN-NSDL/TRACES portal within 30 days from the end of the month in which tax was deducted.
7. How are airdropped tokens and crypto gifts taxed in India?
Airdropped tokens and crypto gifts are treated as income from other sources under Section 56(2)(x) based on their Fair Market Value on the date of receipt. When sold later, subsequent gains are taxed at 30% u/s 115BBH.
8. What is the tax treatment of crypto-to-crypto trading pairs (e.g. BTC to USDT)?
A crypto-to-crypto trade is treated as a taxable transfer of the first asset. Tax at 30% applies on the gain (FMV of the received asset minus cost basis of the transferred asset), and 1% TDS applies under Section 194S.
9. How are online gaming and fantasy sports winnings taxed under Section 115BBJ?
Under Section 115BBJ, net winnings from online games are taxed at a flat rate of 30%. Under Section 194BA, the gaming platform deducts 30% TDS from net winnings at the time of withdrawal or at the end of the financial year.
10. What is the formula for calculating net winnings in online gaming?
Net winnings = Total withdrawals during the year + Closing balance in the user wallet - (Total deposits during the year + Opening balance in the user wallet).
11. What is Schedule VDA in the Income Tax Return?
Schedule VDA is a dedicated schedule in ITR-2 and ITR-3 where taxpayers must report date of acquisition, date of transfer, head of income, cost of acquisition, and sale consideration for every crypto asset sold during the year.
12. Are non-fungible tokens (NFTs) covered under the 30% crypto tax?
Yes. The definition of Virtual Digital Assets under Section 2(47A) explicitly includes Non-Fungible Tokens (NFTs), subjecting all NFT creator sales and secondary marketplace flips to flat 30% tax and 1% Section 194S TDS.
13. What are the consequences of trading on unregistered offshore crypto exchanges?
Offshore exchanges that fail to register with FIU-IND and comply with Indian TDS rules face URL blocking. Indian residents trading on foreign exchanges remain personally liable to deduct 1% TDS via Form 26QE and disclose holdings in Schedule FA.
14. What ITR form should be filed by cryptocurrency traders in India?
Individuals with crypto income must file Form ITR-2 (for capital asset crypto holdings) or Form ITR-3 (if trading in business capacity). Crypto income cannot be reported in simplified Form ITR-1 or ITR-4.
15. Why should crypto and web3 investors hire a specialized CA on WorkIndex?
Verified crypto tax CAs on WorkIndex assist in reconstructing multi-wallet trade ledgers, calculating Section 115BBH schedules, filing Form 26QE challans, and ensuring complete FIU/Schedule VDA compliance.