Classification of Crypto Assets

• Virtual Digital Assets (VDAs), including cryptocurrencies like Bitcoin and Ethereum, are taxable in India.
  
• The Income Tax Act defines VDAs under Section 2(47A) for clarity.
  
• This includes cryptocurrencies, NFTs, and similar digital tokens.
  
• Crypto assets are treated as capital assets or speculative assets based on usage.
  
• The nature of transaction determines the taxation head.
  

Flat Tax Rate on Gains

• As per Section 115BBH, crypto gains are taxed at a flat rate of 30%.
  
• This applies to profits from the transfer of VDAs, irrespective of holding period.
  
• No slab benefit or lower rate applies, even for small investors.
  
• No deductions allowed other than cost of acquisition.
  
• Losses from VDAs cannot be set off against any other income.
  

TDS on Crypto Transfers

• 1% TDS is applicable on crypto transactions under Section 194S, effective from 1 July 2022.
  
• TDS applies when the transaction value exceeds ₹10,000 in a year (₹50,000 for specified persons).
  
• The responsibility to deduct TDS lies with the buyer of the VDA.
  
• TDS deducted can be claimed as a credit while filing returns.
  
• PAN must be provided; otherwise, higher TDS rate may apply.
  

Income Head Based on Use

• If crypto is held as investment, gains are treated as capital gains.
  
• If frequently traded or mined, it is taxed under business income or other sources.
  
• Mining income or crypto received for services is taxed as ordinary income at slab rates.
  
• Gifts of VDAs are also taxable in the hands of the recipient under Section 56(2)(x).
  
• All crypto holdings and transactions must be disclosed in the ITR.
  

Return Filing and Reporting

• Crypto gains must be reported under Schedule VDA in the ITR.
  
• Choose the correct ITR form based on total income and transaction type.
  
• Provide complete details such as date of purchase, sale, cost, and consideration.
  
• Maintain proper records of wallets, exchange statements, and transaction logs.
  
• Non-reporting or misreporting may lead to penalties, interest, or scrutiny.