Income Tax Act 2025: What crypto investors should know about VDA provisions, TDS and ITR filing rules

With the Income-tax Act, 2025 now in effect from 1 April 2026, crypto investors need to keep a few key tax and compliance aspects in mind this year.

While the changes are largely limited to section numbers and the reporting framework, experts said taxpayers still need to understand what these changes mean for their crypto transactions and ITR filings.

What are the key crypto tax changes under the new Act?

Punit Agarwal, Founder and CEO of KoinX, explained the key changes from the Income-tax Act, 1961 to the Income-tax Act, 2025.

• 30% tax: Earlier covered under Section 115BBH; now under Section 194(1).
• 1% TDS: Earlier covered under Section 194S; now under Section 393(1).
• Section 509: Introduces a new reporting framework for crypto exchanges that was not present under the earlier Act.

Rajagopal Menon, Vice President, WazirX, added that Section 2(111) defines virtual digital assets (VDAs) in the new IT Act, while Section 446 provides for penalties related to reporting failures. Sections 247 and 261 deal with access to digital records during authorised tax proceedings.

“The new Act represents more of a structural reorganisation of India’s crypto tax framework than a fundamental change in how crypto is taxed. The core provisions remain familiar to investors,” said Prateek Gupta, Head of Business, Mudrex.

Has the definition of VDAs changed?

Virtual Digital Asset is the definition of what’s taxable: crypto, NFTs, and similar tokens, and the new Act has explicitly added crypto-assets to that definition to close any doubt, Agarwal said.

Menon said investors should distinguish between “virtual digital assets” and “virtual digital space”. The latter covers digital environments and records that may be accessed during authorised tax proceedings.

Online investment accounts, trading platforms, emails and cloud records may fall within virtual digital space, but they do not automatically become VDAs or attract the 30% tax, he added.

The inclusion of online investment accounts, cloud servers or email systems within virtual digital space does not make those accounts or systems taxable VDAs. They are digital locations or repositories that may contain information relevant to an assessment or proceeding, Siva Venkataraman, CFO, CoinSwitch, added.

What is the tax on income from transfer of VDAs?

Nothing changes in the arithmetic. Every rupee of gain from a VDA transfer is still taxed at 30%, flat, regardless of how long you held the asset or what tax bracket you’d otherwise fall into. There’s no short-term versus long-term distinction here, unlike equities, Agarwal mentioned.

The 1% TDS framework continues under the new Act. Investors should remember that TDS is an advance tax credit and not an additional 1% tax over and above their final liability, Gupta said.

The TDS provision now falls under Section 393(1). The terminology has also changed, with the new Act using “Tax Year” instead of “Assessment Year” and “Previous Year”. For an investor tracking their TDS credit, the number on your certificate should look the same; the label above it will look different, Agarwal added.

What expenses can investors deduct? Can VDA losses be carried forward?

Only the cost of acquiring the VDA can be deducted. Trading fees, platform charges, advisory expenses and similar costs cannot be separately deducted under the special VDA provision. Losses from one VDA cannot be set off against gains from another VDA or against salary, business income or capital gains, and VDA losses cannot be carried forward, said Menon.

You can subtract what you paid to acquire the asset, nothing else, not exchange fees, not internet or infrastructure costs, not losses from other VDA transactions, and definitely not losses from unrelated income, Agarwal added.

What is new about crypto-transaction reporting under Section 509?

Section 509 introduces a dedicated reporting framework for crypto-asset service providers. Exchanges and similar intermediaries will have to identify users, verify tax residency, and file annual transaction-level reports through Form 167, Agarwal said.

The reporting covers crypto-to-crypto trades, crypto-to-fiat conversions and transfers, rather than only buy-and-sell transactions, he added.

Crypto service providers, such as exchanges, brokers, dealers and custodial platforms, must report specified user and transaction information, Menon said.

For individual investors, the key point is that Section 509 creates an information trail through reporting entities. Investors continue to remain responsible for correctly reporting their taxable income and eligible transactions in their income-tax returns, Venkataraman added.

How could the reporting requirements affect crypto investors?

Agarwal said crypto-to-crypto and crypto-to-fiat activity on an exchange gets captured cleanly. Transfers to an external or personal wallet are also reportable; the exchange records the transfer and the destination wallet address in its filing.

“What goes dark is anything that happens after that, once the asset is sitting in a personal wallet with no exchange involved; that activity has no reporting trail at all. That’s the part investors under-document because it doesn’t feel like a taxable event the way a sale does,” he added.

He advised investors to keep exchange statements, wallet transaction histories, TDS certificates and cost-basis records for every asset, including those moved off an exchange.

Venkataraman said investors should maintain the following records:

• Date and time of each transaction.
• Name, type, and quantity of the crypto-asset.
• Acquisition cost and transaction value.
• Value of the crypto-asset received in a crypto-to-crypto exchange.
• Fees, brokerage, and other transaction charges.
• Exchange statements and downloadable transaction reports.
• Wallet addresses and transaction IDs.
• Records of transfers between exchanges and self-custodied wallets.
• Documents supporting the valuation used for tax reporting.

What should investors keep in mind while filing their next ITR?

The terminology change to “Tax Year” will also apply to crypto-related tax filings. However, reporting under Section 509 will cover transactions from calendar year 2026, with the first reports expected in 2027, Agarwal said.

Investors using multiple exchanges or self-custodied wallets should prepare a consolidated transaction ledger and preserve valuation records for crypto-to-crypto transactions and transfers across platforms, Venkataraman said.

While filing the next ITR, investors should report all taxable VDA income, including crypto-to-crypto transactions, and reconcile it with exchange statements, AIS, Form 26AS, and TDS records. VDA losses should not be used to offset taxable VDA gains. Investors should also separately review airdrops, staking rewards, mining income, gifts, and transactions on foreign platforms, Menon mentioned.

Disclaimer: This is only for informational and educational purposes. Please consult a qualified expert for the latest laws and regulations.