Decoding crypto taxes in India: A guide to ITR forms, airdrops, NFTs, TDS and business income

Under Section 115BBH, gains from transfers (selling, swapping or spending VDAs) are taxed at a flat 30 percent rate plus 4 percent cess—irrespective of holding period or income slab.

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A 1 percent TDS or tax deducted at source (under Section 194S) is deducted on crypto and NFT or non-fungible token transfers exceeding Rs 10,000 or Rs 50,000, depending on the taxpayer type, to increase traceability.

Further, on February 1, 2025, the budget introduced Section 285BAA, mandating exchanges registered with the Financial Intelligence Unit (FIU) to report each crypto transaction to the tax authorities, including buyer/seller identity, exact timing and coin details.

“Failure to declare crypto income may result in it being treated as undisclosed income with up to 60 percent tax penalty plus cess and surcharge,” said Dasgupta.

Reporting crypto capital gains? Use ITR-2 or ITR-3

“Individual investors can report crypto capital gains in income tax return or ITR-2. While crypto losses cannot be carried forward or set off as per the provisions of Section 115BHH of the I-T Act, the individual taxpayer may, out of abundant caution, disclose the same in the year of incurring the loss to ensure full disclosure,” said Riaz Thingna, partner, Grant Thornton Bharat.

Note that for a salaried investor with crypto capital gains, one can use ITR-2. However, for business income, one needs to file ITR-3. Further, the updated ITR-2/ITR-3 Excel utilities for FY25 (assessment year 2025-26) now include Schedule VDA for crypto/NFT disclosure.

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Additionally, in Schedule VDA, report each VDA transfer: acquisition date, sale date, cost of acquisition, and proceeds. Schedule TDS should include 1 percent TDS withheld, often auto-populated, but should be verified.

Crypto airdrops, NFTs taxed as other sources

Crypto airdrops are generally taxed as “income from other sources”. Since these are generally received free of cost, a fair market valuation would be required to calculate the taxable value of the airdrops.

“Akin to bonus shares, airdrops are free tokens distributed by the exchanges to the users’ wallets. However, the intent is majorly promotional. Airdrops are treated as income from other sources, taxed at the normal slab rate on the FMV (fair market value) at the time of receipt (Rule 11UA). If FMV isn’t available (not listed), FMV may be considered zero—creating complexities later when selling,” said Dasgupta.

Upon a later sale or swap of that airdropped token, the capital gain is taxable at 30 percent on proceeds minus cost, where cost equals FMV at receipt—even though it was taxed earlier as income (risk of double taxation).

NFTs are treated similarly, wherein gains on sale are taxed at 30 percent flat plus cess; if sold at a loss, there is no tax—but losses cannot be used to offset other gains.

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“Staking income, mining rewards, referral bonuses, etc., are treated as income under the 'other sources' head and taxed at slab rates on FMV at receipt; subsequent sales attract the 30 percent gain tax if the value increases,” said Dasgupta.

How crypto business income is taxed and reported

“Individuals regularly engaged in the activity of buying and selling cryptos would be classified as a business activity and, therefore, the corresponding income would be reported as business income in ITR-3. Costs and other business expenses would be allowed as a deduction. The net profits would be taxed at the applicable slab rates of the individual,” said Thingna.

Adjusting crypto TDS in ITR

TDS is required under Section 194S of the I-T Act on the sale consideration by the buyer. In case the buyer is not required to obtain a TAN (tax deduction and collection number), the buyer is required to furnish a statement in Form 26QE quoting his/her PAN.

“When reporting crypto income under the ITR in India, keep detailed records of all transactions including dates, amounts and nature; report the cost of acquisition to calculate capital gains accurately, which are taxed at a flat rate of 30 percent under 'income from capital gains',” said Aditya Bhattacharya, partner, King Stubb & Kasiva, Advocates and Attorneys.

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Account for the 1 percent TDS on transactions above the specified threshold; remember that losses from one crypto asset cannot be offset against gains from another, and include all these details in your tax return under the appropriate schedule for capital gains.

TDS not withheld? Seller is liable for capital gains tax

The seller of a crypto asset would have to pay the applicable taxes if the TDS isn’t deducted and paid by the buyer. If TDS is not deducted on your crypto income in India, you are still required to report the full amount of your crypto transactions in your ITR.

“You'll need to calculate and pay the 30 percent tax on your capital gains yourself. Additionally, if TDS was supposed to be deducted but wasn't, you may face penalties or interest for non-compliance by the party responsible for deducting TDS. It's important to keep detailed records and ensure all transactions are reported accurately to avoid any legal issues,” said Bhattacharya.