India Classifies Virtual Digital Assets as Taxable Property

Why in the News?

The Income Tax Bill, 2025 officially classifies Virtual Digital Assets (VDAs) as property and capital assets, subjecting them to capital gains tax, 30% income tax on transfers, and 1% TDS, aligning India’s crypto taxation with global standards.

India Classifies Virtual Digital Assets as Taxable Property

About VDAs as Property and Capital Assets:

  • The Income Tax Bill, 2025 explicitly classifies Virtual Digital Assets (VDAs) as property and capital assets under Section 92(5) and Section 76().
  • VDAs include cryptocurrencies, Non-Fungible Tokens (NFTs), and similar digital assets.
  • This classification means gains from VDAs will be taxed under capital gains provisions, similar to real estate and stocks.
  • For instance, selling Bitcoin bought for ₹10 lakh at ₹20 lakh incurs capital gains tax on the ₹10 lakh profit.
  • The move aligns India with global taxation practices, such as the K., U.S., Australia, and New Zealand, where VDAs are treated as either securities or property.

Taxation and Compliance Measures

  • A 30% tax is imposed on income from VDA transfers, continuing the 2022 tax precedent.
  • Unlike traditional capital assets, deductions (other than acquisition cost) are not allowed—meaning expenses like mining and transaction fees cannot be deducted.
  • A 1% Tax Deducted at Source (TDS) applies to VDA transactions, including peer-to-peer (P2P) transfers, ensuring government tracking of crypto transactions.
  • The TDS exemption threshold is ₹50,000 for small traders and ₹10,000 for others.
  • Comparatively, in UAE, the Virtual Assets Regulatory Authority (VARA) allows 0% personal income tax on VDA gains in regulated conditions.

Regulatory and Enforcement Provisions

  • VDAs must be reported in Annual Information Statements (AIS) to ensure transparency and prevent tax evasion.
  • Undisclosed VDA holdings will be classified as unreported income and taxed accordingly.
  • Tax authorities are empowered to seize VDAs during investigations or tax raids, similar to cash or real estate seizures.
  • Entities handling VDAs, including crypto exchanges and wallet providers, must report transactions in a prescribed format to curb money laundering.
  • India’s legal approach aligns VDAs with international standards but lacks a comprehensive regulatory framework covering investor protection and financial security.

Features of Taxation Proposals on Virtual Digital Assets (VDAs):

  • Definition of VDA: Includes cryptocurrencies, stablecoins, and NFTs, defined as any digital unit with inherent value, a unit of account, or a store of value.
  • Tax Rate: Profits from VDA transfers are taxed at 30%.
  • No Set-Off Allowed: Losses from other income sources cannot be set off against VDA income, and VDA losses cannot be set off against other income.
  • Gift Taxation: VDAs received as gifts are now taxable.
  • TDS Deduction: 1% TDS applies on payments for VDA transfers, ensuring government tracking.