Most Chartered Accountants (CAs) advising crypto clients start with the same assumption: a flat 30% tax under Section 115BBH and 1% TDS under Section 194S cover the bulk of the work. However, real client portfolios rarely stay that simple. Investors now hold assets across multiple exchanges, DeFi protocols, staking pools, and instruments that the Income Tax Department (ITD) has not directly addressed.
Consequently, several common transactions, such as stablecoin swaps, crypto derivatives, and pre-2017 holdings, sit in genuine grey areas, where two CAs can reach two different, defensible reporting positions. Moreover, an incorrect classification does not just affect a client’s tax outcome; it exposes them, and potentially the advising CA, to scrutiny during assessment. Budget 2026-27 has only raised these stakes, introducing stricter reporting penalties and expanding disclosure obligations across the board.
Therefore, staying current on enacted law is no longer optional for anyone advising crypto clients. This guide walks through the applicable Income Tax Act provisions, the Budget 2026-27 changes CAs must apply this season, and the specific grey areas, including derivatives, stablecoins, DeFi income, and undocumented legacy holdings, where professional judgment carries real weight.
Key Takeaways
- Cryptocurrencies and NFTs are classified as Virtual Digital Assets under Section 2(47A), bringing every transaction type, from simple trades to DeFi swaps and NFT sales, within the scope of Indian income tax law regardless of the platform used.
- Disposing of crypto through sale, swap, or spend attracts a flat 30% tax plus 4% cess under Section 115BBH, with no distinction between short-term and long-term holdings and no deductions beyond the original cost of acquisition.
- Receiving crypto through staking, airdrops, mining, or salary is taxed separately as income at the applicable slab rate under Sections 56(2) and 28, based on fair market value on the date of receipt, before any later disposal is taxed again.
- A 1% TDS applies under Section 194S on transfers exceeding Rs 10,000, deducted from the seller’s proceeds, while undisclosed holdings discovered during a search face a 60% tax under the now-enacted Section 158B.
- Budget 2026-27 enacted Section 158B, taxing undisclosed crypto holdings at 60% with a 48-month audit window, renumbered TDS filing penalties under Sections 427 and 461, and confirmed CARF disclosures of foreign exchange holdings from April 2027.
Applicable Sections of the Income Tax Act on Cryptocurrencies
Before diving into transaction-specific treatment, it helps to have every governing provision in one place. The table below lists each relevant Income Tax Act section, its core function, and the applicable rate or penalty, so you can cite the correct provision without cross-referencing multiple sources.
Section | Provision | Rate / Penalty | Effective Date |
Defines Virtual Digital Assets (VDAs), covers cryptocurrencies, NFTs, and tokens | N/A (definitional) | April 1, 2022 | |
Charges income under Profits and Gains from Business or Profession (PGBP) — applies when crypto activity (active mining, trading desks, derivatives) rises to the level of a business | Taxed at applicable slab rate; business expenses deductible | Existing provision | |
Taxes gifts of property (including VDAs) received without consideration, or for inadequate consideration, as Income from Other Sources | Taxed at slab rate on fair market value; exemption for gifts up to INR 50,000/year and gifts from specified relatives | Existing provision | |
Flat tax on VDA gains; no deductions except cost of acquisition; no loss set-off against any other income | 30% + 4% cess | April 1, 2022 | |
TDS on VDA transfers | 1% TDS above INR 10,000 (INR 50,000 for specified persons) | July 1, 2022 | |
Undisclosed VDA holdings found during search/block assessment; 48-month retrospective audit window under Section 139(8A); no deductions allowed | 60% tax | Enacted, FY 2024-25 | |
Penalty for failure to deduct TDS | Equal to unpaid TDS amount | Existing provision | |
Penalty for failure to remit deducted TDS to the government | Fine + imprisonment up to 2 years (reduced from 7 years) (Applicable from April 1, 2026) | Amended, Budget 2026-27 | |
Section 427 (formerly Section 234E) | Late filing fee for delayed TDS returns | INR 200/day, capped at the total TDS amount deducted | Existing provision (renumbered) |
Section 461 (formerly Section 271H) | Penalty for non-filing or incorrect filing of TDS returns | INR 10,000 to INR 1,00,000; waived if TDS is paid, late fees/interest are cleared, and the return is filed before expiry of 1 month of time limit mentioned in Section 397(3)(b) | Existing provision (renumbered) |
GST on platform service fees charged by offshore crypto exchanges | 18% | July 2025 |
How is Crypto Taxed in India in 2026?
Crypto transactions in India are taxed under four different heads depending on the nature of the transactions, they are:
- Capital Gains Tax (CGT) applies when a client disposes of a VDA already held as an investment, through a sale, swap, or spend. This is where the flat 30% rate under Section 115BBH applies, regardless of how long the asset was held. There is no short-term or long-term distinction, and no deduction is allowed beyond the cost of acquisition.
- Income from Other Sources (IFOS) applies when a client receives a VDA rather than disposes of one, through mining rewards, staking income, airdrops, gifts above INR 50,000, or referral bonuses. IFOS is taxed at the client’s applicable slab rate based on the asset’s fair market value on the date of receipt. A second, separate CGT event occurs later if that asset is subsequently sold.
- Profits and Gains from Business or Profession (PGBP) applies when crypto activity rises to the level of a business rather than passive investment, most commonly active mining operations, running a trading desk, or speculative derivatives trading. Under PGBP, clients can claim business expense deductions (equipment, electricity, infrastructure) that are unavailable under CGT, but profits are taxed at slab rate rather than the flat 30%. If you want, you can find the applicable slab rate for PGBP income head for FY 2025-26 here.
- Tax Deducted at Source (TDS) under Section 194S sits alongside all three heads above rather than replacing them. A 1% TDS applies on VDA transfers exceeding INR 10,000 in a financial year (INR 50,000 for individual or HUFs with business income less than INR 1 crore or professional income less than INR 50 lakhs), deducted at the point of transfer regardless of whether the underlying asset is taxed as gain or loss.
Note: Starting July 01, 2022, under Section 194S of the Income Tax Act, 1961, buyers must deduct 1% TDS when paying sellers for crypto/NFT transfers. If the transaction occurs on an Indian exchange, the exchange handles the TDS deduction and disburses the balance to the seller, relieving the buyer of this responsibility.
How do Different Crypto Transactions Attract Tax in India?
In India, the majority of crypto transactions are liable for crypto taxes. Here’s a list of all the transactions and their tax implications in India:
Transaction | Tax Head | Rate / Treatment |
Holding crypto | None | Tax-free, no transaction has occurred |
Moving crypto between your own wallets | None | Tax-free, no change in ownership |
Buying crypto with INR | None | Tax-free |
Crypto Disposal | CGT + TDS | 30% + 4% cess on gains, plus 1% TDS on transaction value |
PGBP (Speculative Business Income) | Slab rate; losses set off only against speculative income, carried forward up to 4 years | |
PGBP (Speculative Business Income) + TDS | Taxed at slab rate as speculative business income; 1% TDS on conversion to INR; losses set off only against speculative income | |
Derivatives Trading (options, perpetuals, structured products) | IFOS + CGT | Yield/premium component taxed at slab rate as IFOS; settlement or swap component taxed at 30% + 4% cess as a separate event |
IFOS → CGT on disposal | Slab rate on receipt (FMV in INR); 30% + 4% cess when later sold, swapped, or spent | |
IFOS or PGBP → CGT on disposal | Slab rate (hobby) or business income with deductions (commercial scale); 30% + 4% cess on disposal | |
IFOS (conditional) → CGT on disposal | Tax-free below INR 50,000/year, if above then at slab rate on receipt; 30% + 4% cess when later disposed | |
IFOS → CGT on disposal | Slab rate on receipt of tokens; 30% + 4% cess on subsequent sale | |
IFOS → CGT on disposal | Slab rate on FMV at receipt; 30% + 4% cess + 1% TDS on disposal | |
IFOS (Conditional) | Tax-free below INR 50,000/year or from specified relatives; slab rate above that threshold | |
CGT | Treated as disposal: 30% + 4% cess; no deduction available since crypto isn’t a recognized donation instrument | |
IFOS → CGT on disposal | Slab rate on receipt; 30% + 4% cess on later sale, swap, or use | |
IFOS or PGBP | Slab rate as IFOS if occasional or low-level activity, with no deductions; business income at slab rate under PGBP if conducted regularly at business scale. Also, 30% + 4% cess on disposal of tokens received either way | |
PGBP | Always business income at slab rate, regardless of frequency or amount; Section 44ADA presumptive scheme available under the same thresholds; 30% + 4% cess on disposal | |
CGT (or Section 158B if undocumented) | 30% + 4% cess as standard; reclassified as undisclosed income at 60% + 25% surcharge + 4% cess, if KYC/documentation is missing during an ITD inquiry |
How are Non-Fungible Tokens (NFTs) Taxed in India?
NFTs are also classified as VDAs under Section 2(47A)(b), so buying, selling, swapping, or earning from them each carries a distinct tax obligation, similar to cryptocurrencies. Treatment differs sharply between NFT creators and collectors, which affects the applicable tax rate:
Transaction | Tax Head | Rate / Treatment |
Buying NFTs with fiat (INR/USD/EUR) | None | Tax-free, no liability arises on the purchase itself |
Buying NFTs with cryptocurrency | CGT (on the crypto spent) | Spending crypto to buy an NFT is a disposal of that crypto; 30% + 4% cess on any gain, no loss set-off against other capital gains |
Selling NFTs for INR or crypto (as a collector) | CGT | 30% + 4% cess on gain; holding period is irrelevant, no deductions beyond cost of acquisition |
Swapping NFT for NFT | CGT | FMV of the NFT given up is the sale value; 30% + 4% cess on any gain above original cost |
Airdropped NFTs | IFOS → CGT on disposal | Slab rate on FMV at receipt; if FMV is nil at receipt, full sale proceeds are taxable on later disposal |
Staking an NFT | IFOS → CGT on disposal | Slab rate on staking rewards; 30% + 4% cess on subsequent sale of the staked NFT |
Creating and Minting an NFT | None | Tax-free, minting itself is not a taxable event |
Selling NFTs as a creator (First sale) | PGBP | Business income at slab rate; minting fees, platform charges, and gas costs are deductible; filed in ITR-3 |
Earning Royalties as a Creator | PGBP | Business income at slab rate on each royalty receipt; reported cumulatively under PGBP |
NFT Losses (collectors) | None | Cannot be set off against any other income and cannot be carried forward |
How are Decentralised Finance (DeFi) Transactions Taxed in India?
There are no separate tax rules for DeFi yet, but the existing VDA tax rules still apply. A single DeFi activity, such as staking, swapping, or lending, can create multiple taxable transactions. Each transaction may be taxed differently depending on the type of crypto activity, hence the table below helps you understand the same.
Transaction | Tax Head | Rate / Treatment |
Earning tokens via liquidity mining or governance rewards | IFOS → CGT on disposal | Slab rate on FMV at receipt; 30% + 4% cess on later sale or swap |
Referral rewards on DeFi protocols | IFOS → CGT on disposal | Slab rate on FMV at receipt; 30% + 4% cess on subsequent disposal |
Play-to-earn token income | IFOS or PGBP → CGT on disposal | Slab rate as IFOS if occasional; business income at slab rate under PGBP if regular; 30% + 4% cess on disposal either way |
Browse-to-earn platform income | IFOS → CGT on disposal | Slab rate on FMV at receipt; 30% + 4% cess on later disposal |
Receiving yield farming rewards | IFOS → CGT on disposal | Slab rate on FMV at receipt, regardless of whether sold immediately; 30% + 4% cess on later disposal |
Depositing tokens into a liquidity pool | CGT | Treated as a VDA transfer; 30% + 4% cess on gain; LP tokens received carry cost basis equal to FMV deposited |
Withdrawing tokens from a liquidity pool | CGT | Second disposal event; 30% + 4% cess on gain between LP token cost basis and FMV of tokens received |
Wrapping tokens (e.g., ETH to WETH) | CGT | Conservative position: treated as a VDA transfer; 30% + 4% cess on any gain |
Lending crypto (interest/reward tokens received) | IFOS | Slab rate on FMV of interest tokens at receipt |
Borrowing crypto against collateral | Unclear; likely tax-free at receipt | No tax if beneficial ownership of collateral is retained; CGT at 30% may apply if the protocol gains custody/liquidation rights |
Bridging tokens across chains | Unclear; likely CGT | 30% + 4% cess if beneficial ownership is considered changed; arguably no tax if ownership and economic substance stay unchanged |
DeFi losses | N/A | Cannot be set off against other VDA gains or any other income; cannot be carried forward |
Budget 2026-27: What CAs Need to Know for Crypto Clients
Budget 2026-27 introduced the most significant changes to crypto tax law since Section 115BBH was enacted in 2022. For CAs, these changes affect penalty exposure, retrospective audit risk, and cross-border reporting, all of which require updating client advisory positions this filing season.
New Reporting Penalties Under Section 446
Exchanges and reporting entities now face a penalty of INR 200 per day for late filing of VDA transaction statements, and INR 50,000 for incorrect filing, effective April 1, 2026. While these penalties apply to reporting entities rather than individual clients directly, CAs should advise clients that exchange-side reporting delays or errors may now surface faster in AIS data, increasing the chance of mismatches triggering client-level notices.
Reduced Imprisonment Under Section 276B
The maximum imprisonment for failure to remit deducted TDS to the government has been reduced from 7 years to 2 years, with courts now empowered to convert sentences to fines in appropriate cases. This doesn’t reduce the underlying compliance obligation, clients who fail to remit TDS still face prosecution risk, but it changes the litigation posture CAs should discuss with clients facing existing Section 276B exposure.
Section 158B Now Fully Enacted
Undisclosed VDA holdings discovered during a search or block assessment are now taxed at a flat 60% plus 25% surcharge along with 4% cess, with a 48-month retrospective audit window and no deductions permitted. This is directly relevant to CAs onboarding new clients with historical crypto holdings, particularly those who never previously disclosed gains, since the enactment removes any ambiguity that existed while the provision was pending.
CARF Reporting From April 2027
The Crypto-Asset Reporting Framework (CARF) takes effect in April 2027 under CBDT Notification 19/2026, amending Rule 114F, Rule 114G, and Rule 114H. Once live, foreign exchange holdings, including Binance, Bybit, and OKX accounts, will become visible to the ITD through automatic exchange of information. CAs should begin advising clients with foreign platform exposure to reconcile and disclose these holdings now, rather than waiting for CARF to surface undisclosed positions retroactively.
Schedule VDA Filing Now Mandatory for FY 2025-26
Schedule VDA reporting is mandatory for all VDA disposals in FY 2025-26 (AY 2026-27), with ITR-2 due July 31, 2026 and ITR-3 due August 31, 2026. Combined with the broadened VDA definition under Section 2(47A)(b), a wider range of digital assets, including NFTs and certain DeFi instruments, now fall within the reporting net than in prior years.
Crypto Tax Compliance Checklist for CAs for 2026
Filing crypto tax returns accurately requires more steps than a standard ITR filing. This is because a single client can generate hundreds of transactions across multiple exchanges, wallets, and protocols. Use this checklist to work through a crypto client’s filing systematically.
Collect All Exchange and Wallet Reports
Gather transaction statements from every exchange, wallet, and DeFi protocol the client has used during the financial year, including foreign platforms like Binance or Bybit where TDS isn’t auto-deducted.
Verify AIS and Form 26AS Data against Client Records
Cross-check your client’s Annual Information Statement (AIS) and Form 26AS against their actual transaction history. AIS mismatches, not large undeclared gains, are among the most common triggers for ITD scrutiny.
Reconcile TDS Credits
Confirm 1% TDS under Section 194S has been correctly deducted and credited. For P2P or foreign platform disposals where TDS wasn’t auto-deducted, verify the client has self-reported and remitted the amount via Form 26QE (Form 141 as per Income Tax Act, 2025).
Determine the Correct ITR Form: ITR-2 vs. ITR-3
Passive investors reporting capital gains file ITR-2. Clients with business-level activity, active trading desks, NFT creation, mining at commercial scale, or freelance/consultancy income file ITR-3.
Classify Each Transaction under the Correct Tax Head
Separate disposals (CGT), receipts (IFOS), and business-scale activity (PGBP) before filing. Misclassifying speculative derivatives income as capital gains, or vice versa, is a common and costly error.
Fill Schedule VDA with Complete Disposal-Level Detail
Enter each disposal individually, with date of acquisition, date of transfer, cost of acquisition, and resulting gain. Incomplete or aggregated entries increase audit risk under the broadened Section 2(47A)(b) reporting net.
Calculate Surcharge and Cess Correctly
Apply the 4% health and education cess on all VDA gains, and verify applicable surcharge slabs where the client’s total income crosses the relevant thresholds.
Check for Unreported Prior-Year Holdings
Ask about crypto holdings acquired before FY 2022-23, particularly undocumented or pre-2017 assets. Since Section 158B is now enacted, undisclosed holdings discovered during a search face a 60% tax with a 48-month retrospective window and no deductions.
Advise on Advance Tax where Applicable
If the client’s crypto tax liability for the year exceeds INR 10,000, confirm advance tax installments have been paid on schedule to avoid 1% interest under Sections 234B and 234C.
Flag Foreign Platform Exposure ahead of CARF
For clients holding crypto on foreign exchanges, begin reconciling and documenting these holdings now. CARF reporting from April 2027 will make this exposure visible to the ITD automatically, and undisclosed foreign holdings carry the same Section 158B risk as domestic ones.
Managing this checklist across even a few clients multiplies quickly once transaction volumes, TDS credits, and filing deadlines stack up. KoinX for Tax Professionals consolidates all of these into one dashboard, simplifying reconciliation and bulk filing.
How Can KoinX Help Tax Professionals With Crypto Clients?
Managing crypto tax compliance for even a handful of clients quickly becomes unmanageable when done manually. Each client can generate hundreds of transactions across multiple exchanges and wallets, and reconciling all of it by hand leaves little room for error, let alone time to scale a practice.
KoinX is a global crypto tax platform trusted by over 1.5 million users across 100+ countries, with 800+ exchange and wallet integrations, and its dedicated professional portal is built specifically to handle this at scale.
Multi-Client Dashboard
Every client’s portfolio, transaction history, and tax report status is visible from a single dashboard, rather than switching between separate logins or spreadsheets. This gives CAs a consolidated view across their entire client base, making it easier to track filing progress and spot discrepancies before they become client-facing problems.
One-Click Client Account Access
Accessing an individual client’s account doesn’t require repeated OTP verification or re-authentication each time. Once a client is onboarded, their CA can switch into that client’s data directly from the dashboard, cutting out the friction of manual login handoffs during high-volume filing periods when time with each client matters most.
Bulk Report Generation
Rather than generating tax reports one client at a time, CAs can generate reports for multiple clients in a single action. This is particularly useful during filing season, when dozens of clients need ITR-ready reports within the same compliance window, and manual, one-by-one generation isn’t practical.
Deep Exchange and Wallet Integration
KoinX maps every transaction type a connected exchange or wallet supports, not just basic trades, and monitors for new transaction types as exchanges add products. This reduces the reconciliation work a CA would otherwise do manually when a client’s exchange statement doesn’t cleanly categorise every transaction.
Edit Log History
Every change made to a client’s transaction data is recorded in a full audit trail, showing what changed, when, and by whom. This gives CAs a verifiable record to fall back on if a client disputes a figure or if a filing is questioned during assessment.
Managing more crypto clients doesn’t have to mean managing more spreadsheets. Sign up onKoinX for Tax Professionals to onboard your first client, automate tax reports, and simplify crypto tax filing from day one.
Conclusion
Crypto taxation for Indian clients has moved well past a flat 30% rate and 1% TDS. Between derivatives filed under the wrong schedule, stablecoin swaps that quietly trigger disposal events, and pre-2017 holdings with no verifiable cost basis, the grey areas now carry as much compliance risk as the settled law. Add Budget 2026-27’s stricter penalties and the CARF disclosures arriving in 2027, and the margin for error keeps shrinking for every CA advising crypto clients this season.
Consequently, getting this right at scale requires more than manual reconciliation across dozens of client accounts. This is precisely where KoinX for Tax Professionals fits in, consolidating every client’s transactions, TDS credits, and filing status into one dashboard. Sign up and generate your first client’s tax report today.
Frequently Asked Questions
What Happens if a Client Already Filed Crypto-to-Crypto Swaps as Non-Taxable?
This needs correction via a revised return under Section 139(5), since crypto-to-crypto swaps are disposal events under Section 115BBH regardless of whether INR was involved. File the revised return before the assessment year deadline, recompute the correct 30% tax plus 4% cess on each swap, and pay any resulting interest under Section 234B or 234C.
How Should a CA Treat a Client's Undocumented Pre-2017 Crypto Holdings?
Document as much as possible first: blockchain explorer records, historical price archives, and any bank or UPI trail linking to the acquisition. Where cost basis genuinely cannot be reconstructed, flag the exposure clearly to the client, since the ITD can invoke Section 68 or 69 and tax the full value at a 60% flat tax plus 25% surcharge and a 4% cess on the tax.
Are Stablecoin-to-Stablecoin Swaps Really Taxable if No Profit Was Made?
Yes. Every stablecoin swap, including USDT to USDC, is a disposal of a VDA under Section 2(47A), triggering Section 115BBH regardless of whether a gain resulted. If the swap value is identical, the taxable gain may be zero, but the transaction still needs to be reported individually in Schedule VDA, not omitted as immaterial.
Can a CA Rely on Exchange-Generated Tax Reports Without Independent Verification?
Not safely. Exchange reports often miss cross-platform transfers, DeFi activity, and P2P transactions conducted outside that specific exchange, and TDS credited to a counterparty’s PAN won’t appear in a client’s own statement at all. Cross-checking against AIS, Form 26AS, and the client’s full wallet history remains necessary even when an exchange report looks complete.
What Should a CA Do if a Client's TDS Credit Doesn't Match Their Transaction History?
Reconcile against Form 26AS and AIS first, since mismatches are the most common trigger for ITD scrutiny, not large undeclared gains. If TDS was deducted but not reflected, the client may need to follow up with the deducting exchange; if TDS was never deducted on a P2P or foreign transfer, self-reporting via Form 26QE is required.
How Does CARF Change What CAs Should Advise Clients With Foreign Exchange Accounts?
From April 2027, holdings on foreign platforms like Binance or Bybit become visible to the ITD through automatic exchange of information under CBDT Notification 19/2026. CAs should advise clients with undisclosed foreign holdings to reconcile and voluntarily disclose them now, since Section 158B’s 60% tax and 48-month audit window apply equally to foreign-held assets.
Is DeFi Income Taxed Even Though the ITD Hasn't Issued Specific Guidance?
Yes. In the absence of DeFi-specific rules, existing VDA provisions under Sections 56(2) and 115BBH still apply based on the nature of each transaction. Liquidity mining and staking rewards are taxed as Income from Other Sources at receipt, and swaps, deposits, and withdrawals are taxed as capital gains on disposal.
