The End of the Gray Area: How Income-tax Bill 2025 Solidifies VDA Taxation.

1. What are Virtual Digital Assets (VDAs) under Income-tax Law?

• Hook: Acknowledge the popularity of Crypto/NFTs but immediately pivot to the regulatory reality.
• Context: Mention that while the 30% tax was introduced previously, the 2025 Bill/Amendments (and recent Finance Acts) have closed the loopholes.
• Key Message: The government’s stance is clear—Virtual Digital Assets (VDAs) are taxable, trackable, and non-negotiable.”

2. The 30% Flat Tax (Section 115BBH): No Slabs, No Mercy

• The Rule: Explain that income from the transfer of VDAs is taxed at a flat 30% (plus surcharge and cess).
• The Catch: Clarify that this applies irrespective of your income slab.
  • Example: Even if your total income is ₹4 Lakhs (below the taxable limit), your ₹50,000 crypto profit is still taxed at flat 30%.
• No Expense Deduction: Emphasize that only the Cost of Acquisition is deductible. Brokerage, internet fees, or platform charges cannot be deducted.

3. The “Strict Rules” on Losses: The Investor’s Trap

• No Set-Off Against Other Income: Explain that a loss in Crypto cannot reduce your tax on Salary or Business income.
• No Carry Forward: If you have a net loss of ₹2 Lakhs this year, you cannot carry it forward to next year to offset future profits. It is a “dead loss.”
• The “Intra-Head” Restriction (Crucial Point): Highlight the stricter interpretation where losses from one VDA (e.g., Bitcoin) might not be allowed to set off gains from another VDA (e.g., NFT) depending on the specific asset class interpretation. Advisory Note: Treat every profitable trade as taxable.

4. The 1% TDS Footprint (Section 194S)

• The Mechanism: Explain that 1% TDS is deducted on transfers >₹10,000 (or ₹50,000 for specified persons).
• The Real Purpose: It’s not just tax collection; it’s a tracking mechanism.
• The AIS/TIS Link: Warn readers that this TDS appears in their Annual Information Statement (AIS). If they don’t declare it in their ITR, it triggers an automatic “Mismatch Notice.”

5. New & Critical: Mandatory Reporting & “Undisclosed Income”

• Section 285BAA (Reporting Entities): Mention the new/proposed requirements for exchanges to report transactions directly to the Income Tax Department (similar to banks reporting high-value deposits).
• The Risk: If you hold crypto on foreign exchanges and don’t declare it, or if you hide wallets, it can be treated as “Undisclosed Income” under stricter Search & Seizure provisions.
• Schedule VDA: Remind them that the ITR forms now have a specific “Schedule VDA” that must be filled.

6. Actionable Advice for Investors

• Download Reports: Don’t rely on app dashboards. Download the Excel Trade History from every exchange.
• Use Tools: Suggest using crypto-tax software (like Koinly or similar) to calculate accurate P&L, as manual calculation is error-prone.
• Consolidate: If trading on multiple platforms, consolidate data to ensure you aren’t missing TDS credits.

7. Conclusion: Don’t Face the Notice Alone

• Summary: The rules are tough, but compliance is cheaper than the penalty (which can range from 50% to 200% of tax payable).
• Call to Action: “Unsure about your VDA tax liability?
• Contact Kunal Kapoor & Associates for a comprehensive portfolio review and safe filing.”

FAQ 1
Q: How are virtual digital assets taxed in India?
A:
VDAs are taxed at a flat rate under Section 115BBH with no set-off of losses, as clarified under the Income-tax Bill 2025.

FAQ 2
Q: Is crypto income required to be reported in ITR?
A:
Yes, all VDA transactions must be reported in the income tax return, irrespective of profit or loss.