Section 115BBH was introduced in Budget 2022 to tax income from the transfer of virtual digital assets (VDAs) including cryptocurrencies, NFTs, and other digital assets. A flat 30% tax applies on gains, with no deductions allowed for any expenses except the cost of acquisition. This means you cannot deduct transaction fees, exchange fees, internet costs, or any other expenses.

Section 194S mandates a 1% TDS on the transfer of virtual digital assets. The TDS is deducted by the buyer when paying consideration to the seller. If the transaction value exceeds ₹50,000 per financial year (₹10,000 for specified persons), TDS applies. TDS can be claimed as a credit when filing your income tax return. For transactions through exchanges, the exchange deducts and deposits the TDS.

Maintain detailed records of every crypto transaction including: date of purchase, purchase value in INR, date of sale, sale value in INR, transaction fees, exchange used, and wallet addresses. Use crypto tax software or maintain a spreadsheet to track your cost basis and gains. Proper records are essential for accurate tax filing and to respond to any income tax notices.

Crypto gains must be reported in Schedule VDA of the Income Tax Return. All transactions, including crypto-to-crypto trades, NFTs, airdrops, staking rewards, and mining income are taxable. Failure to report can result in notices, penalties up to 200% of tax evaded, and prosecution. Consider consulting a crypto tax specialist for complex portfolios involving multiple exchanges and DeFi transactions.