VDA Tax Under Section 115BBH for AY 2026-27: The Flat 30% Rule, Explained Like You're 25
TL;DR
- Section 115BBH taxes income from transfer of Virtual Digital Assets (VDAs) at a flat 30%, plus applicable surcharge and 4% health and education cess.
- The slab rates under the old or new regime do not apply, even if your total taxable income is below the basic exemption limit.
- Only the cost of acquisition is deductible. No exchange fees, gas charges, internet bills, infrastructure costs, or Section 80C deductions can reduce the VDA gain.
- Loss from one VDA cannot be set off against gain from another VDA, against any other head of income, or carried forward to future years.
- A 1% TDS under Section 194S is also deducted at source on most VDA transfers above the prescribed threshold, separate from the 30% tax.
- The rules apply for AY 2026-27 (FY 2025-26) just as they did from FY 2022-23 onward, with no relaxation in Budget 2025.
What this means in plain terms
If you bought Bitcoin, Ether, Solana, a meme coin, or any Non-Fungible Token in India and sold it during FY 2025-26, your profit is taxed at 30% no matter what your salary slab is. A first-year analyst earning Rs. 6 lakh and a founder earning Rs. 2 crore both pay the same 30% on their VDA gain. There is no concept of long-term versus short-term, no indexation, no Section 54 reinvestment exemption, and no rebate under Section 87A on this income.
That sounds harsh because it is. The government deliberately designed Section 115BBH to discourage casual speculation in crypto. So if you are sitting on a profitable trade and thinking of selling, the maths is simple: subtract your purchase cost, multiply the gain by 30%, add cess, and that is your tax. Everything else you spent does not count.
Section 115BBH: the law in five lines
What qualifies as a VDA
The term Virtual Digital Asset is defined in Section 2(47A) of the Income Tax Act and covers any cryptocurrency, token, or NFT generated through cryptographic means. Bitcoin, Ethereum, stablecoins like USDT, exchange tokens, gaming tokens, and NFTs all fall inside this definition. Gift cards, reward points, and subscription tokens are specifically excluded by CBDT notification.
The flat 30% rate
Section 115BBH(1) states that income from transfer of any VDA is taxable at 30%. Add 4% health and education cess on the 30%, and if your total income crosses Rs. 50 lakh, the relevant surcharge slab applies on top. So the real effective rate sits between 31.2% and around 42.7% depending on your overall income bracket.
No deduction other than cost
Section 115BBH(2)(a) is the painful part. You can only subtract the cost of acquisition. You cannot subtract exchange brokerage, withdrawal fees, gas fees on Ethereum, the cost of a hardware wallet, internet bills, or any indirect expense. You also cannot claim Chapter VI-A deductions like Section 80C or 80D against this income.
No set-off and no carry forward
Section 115BBH(2)(b) blocks all set-off. If you made Rs. 2 lakh on Bitcoin and lost Rs. 80,000 on a meme coin, you still pay 30% on the full Rs. 2 lakh. The Rs. 80,000 loss is wasted. You also cannot carry it forward to next year. Salary loss, business loss, or capital loss from equity cannot reduce VDA gains either.
Gifts of VDAs are taxed too
If someone gifts you a VDA and they are not a relative under Section 56(2)(x), the fair market value of the VDA is taxable as Income from Other Sources in your hands, on top of any future Section 115BBH liability when you sell it.
How the 30% interacts with the 1% TDS
Section 194S deducts 1% at source
When you sell a VDA on an Indian exchange like CoinDCX or WazirX, the exchange deducts 1% TDS under Section 194S if the consideration crosses Rs. 50,000 in a year (Rs. 10,000 for specified persons). This TDS is not the final tax. It is a prepayment that you can claim while filing ITR.
The TDS does not reduce the 30% liability
The 1% TDS is on the gross sale value, not on the profit. So even after the exchange deducts it, you still owe 30% on the actual gain calculated after subtracting cost. If your 30% liability is lower than the TDS already paid, you get a refund. If higher, you pay the difference as self-assessment tax.
Peer-to-peer trades also attract TDS
If you sell crypto to a friend through a private wallet transfer, the buyer is legally required to deduct 1% TDS and deposit it. Most P2P traders ignore this, which is exactly the kind of mismatch the Income Tax Department flags through the Annual Information Statement.
Reporting VDAs in your ITR
Schedule VDA in ITR-2 and ITR-3
For AY 2026-27, Schedule VDA continues to appear in ITR-2 and ITR-3. You must list every single transaction with date of acquisition, date of transfer, cost, sale value, and gain. Bulk reporting is not allowed.
Foreign exchanges still need disclosure
If you used Binance, Coinbase, or any non-Indian exchange, the gains are still taxable under Section 115BBH because residency, not exchange location, decides Indian tax. You also need to declare the foreign exchange wallet in Schedule FA of ITR-2 or ITR-3 if you were a Resident and Ordinarily Resident during the year.
Mismatch with AIS will trigger notices
The Income Tax Department now receives transaction data from Indian exchanges through SFT filings. If you report Rs. 1 lakh of VDA gain but AIS shows Rs. 4 lakh of gross sale, expect a Section 143(1)(a) adjustment notice. Reconcile before filing.
A real example
Take Karthik, 29, Rs. 18L CTC, Hyderabad, working as a backend engineer. In April 2025 he bought Rs. 3 lakh worth of Ether at Rs. 2.5 lakh per ETH. In February 2026 he sold the entire position on CoinDCX for Rs. 5 lakh, paying Rs. 4,500 in brokerage and Rs. 5,000 in network fees. He also lost Rs. 40,000 on a Solana memecoin during the same year.
Step 1: Sale value Rs. 5,00,000 minus cost of acquisition Rs. 3,00,000 equals gain Rs. 2,00,000.
Step 2: Brokerage and network fees of Rs. 9,500 are not deductible under Section 115BBH(2)(a). They are ignored.
Step 3: The Rs. 40,000 memecoin loss cannot be set off under Section 115BBH(2)(b). It is also ignored.
Step 4: Tax at 30% on Rs. 2,00,000 equals Rs. 60,000. Add 4% cess of Rs. 2,400. Total VDA tax: Rs. 62,400.
Step 5: CoinDCX already deducted 1% TDS on Rs. 5,00,000 sale value, which is Rs. 5,000. Karthik claims this credit and pays the remaining Rs. 57,400 as self-assessment tax before filing ITR-2.
His Rs. 18 lakh salary is taxed separately under the new regime, and none of his Section 80C or HRA deductions can touch the VDA gain.
What to do this week
- Download a transaction report from every Indian and foreign exchange you used during FY 2025-26 and sort trades by acquisition cost using FIFO.
- Match the 1% TDS already deducted against your Form 26AS and AIS so nothing is missed at filing time.
- List every VDA wallet address you control on foreign exchanges in case Schedule FA disclosure becomes necessary.
- Pay any shortfall as advance tax before 15 March 2026 or as self-assessment tax before filing to avoid Section 234B and 234C interest.
- Run the 6-step assessment at https://myfinancial.in to see your old-vs-new regime delta, unused deductions, and insurance gap in under 10 minutes.
FAQ
Does the 30% rate apply if my total income is below the basic exemption limit?
Yes. Section 115BBH overrides the slab structure. Even if your salary plus other income is Rs. 2 lakh and well below the basic exemption, the VDA gain is still taxed at 30% plus cess. The basic exemption applies only to the remaining non-VDA income.
Can I use Section 87A rebate on VDA gains?
No. Section 87A rebate is not available against income taxed under Section 115BBH. The flat 30% rate applies before any rebate calculation, and the rebate provisions specifically exclude this head.
Is staking reward or yield farming income covered by 115BBH?
Staking rewards are treated as Income from Other Sources at fair market value on the date of receipt and taxed at slab rates. Only when you later transfer the staked token does Section 115BBH apply on that transfer gain.
What if I held the VDA for more than 36 months?
Holding period does not matter. There is no long-term or short-term distinction for VDAs. Whether you held Bitcoin for 7 days or 7 years, gains are taxed at 30% under Section 115BBH.
Do I have to pay GST on top of 30% income tax?
If you are a regular retail investor, no GST. If you operate as a business or run a crypto exchange, GST at 18% applies on the service fee component. The 30% Section 115BBH tax is on the gain, separate from any GST liability.
Can I claim losses if I sold crypto to my spouse to book a loss?
No. Clubbing provisions under Section 64 apply if you transfer assets to a spouse without adequate consideration. The loss cannot be set off under Section 115BBH anyway, so the manoeuvre fails twice over.
Will Budget 2026 reduce the 30% rate?
No reduction has been announced. The industry has lobbied for parity with long-term capital gains on equity, but the Finance Ministry has maintained the deterrent stance. Plan as if 30% will continue for AY 2026-27 and beyond.
Sources
- https://incometax.gov.in for Section 115BBH text and CBDT circulars on VDA taxation
- https://incometaxindia.gov.in for the Finance Act 2022 introducing Section 115BBH
- https://www.incometax.gov.in for Schedule VDA instructions in ITR-2 and ITR-3
- https://finmin.nic.in for Budget speech references on Virtual Digital Asset taxation
- https://rbi.org.in for the Reserve Bank's stance on cryptocurrencies and CBDC distinction
This is general information, not personalised advice. For your situation, consult a Certified Financial Planner.
