How to File Income Tax Return for Cryptocurrency in India –
Section 115BBH, Schedule VDA, ITR-2, ITR-3 and 30% VDA Tax Compliance
A crypto income tax return is now mandatory for every Indian investor and trader. Section 115BBH taxes every Virtual Digital Asset transfer at a flat 30% — anyone selling, swapping, or spending cryptocurrency must file the right ITR with full Schedule VDA disclosure every year.
Overview
What Is a Crypto Income Tax Return?
A crypto income tax return is the annual income tax filing where Virtual Digital Asset transactions are disclosed — using Schedule VDA to report every crypto transfer transaction-wise. Every Indian resident who transferred a VDA during the financial year must file one. "Transfer" covers selling for INR, swapping one crypto for another, and spending crypto on goods or services. Receiving crypto as a gift also creates reporting obligations.
The threshold for filing is the normal basic exemption — not a crypto-specific threshold. Any crypto transaction creates an AIS footprint the tax department can see. The wrong ITR form invalidates the crypto income tax return entirely, Schedule VDA requires transaction-wise disclosure (not aggregate figures), and AIS reconciliation against every exchange TDS entry is non-negotiable for AY 2026-27 onwards.
The tax department actively issues notices for VDA under-reporting based on AIS, Form 26AS, and exchange data. The 1% TDS on crypto under Section 194S creates a visible trail. Section 270A penalty can reach 200% of the tax evaded, and Section 276C prosecution applies for wilful evasion. Accurate filing is far cheaper than defending a notice later through scrutiny proceedings.
Tax Framework
Section 115BBH – The 30% VDA Tax Framework
Section 115BBH is the core tax provision for every crypto income tax return. It taxes income from transfer of Virtual Digital Assets at a flat 30% — every sale, swap, or spend of crypto falls within this regime. The rules are strict, and traditional capital-gains planning does not reduce the burden.
Applies irrespective of the taxpayer's slab — even 0% or 5% slab taxpayers pay 30% on VDA gains. Surcharge and 4% health & education cess apply on top.
No short-term vs long-term distinction for VDAs. Holding crypto for 10 days or 10 years gives the same 30% rate — no LTCG benefit, no indexation.
Only cost of acquisition is deductible — no brokerage, no gas fees, no platform charges, no loan interest, no mining or staking costs. Strictly gross-based.
VDA losses cannot offset VDA gains, salary, business, or any other income. Also cannot be carried forward. Each loss sits permanently in its own silo.
Form Selection
Which ITR Form for Cryptocurrency – ITR-2 or ITR-3?
Selecting the right ITR is the most critical decision. The choice lies between ITR-2 (capital gains) and ITR-3 (business income) — wrong form selection invalidates the entire crypto income tax return. Investor-style holding usually qualifies as capital gains, while organised, frequent, systematic trading points to business income. Factors considered include transaction frequency, holding period, volume, use of bots or algorithmic trading, and whether you maintain regular trading books.
Capital Gains Route
Salaried or pensioner investors with crypto held as investment use ITR-2. VDA treated as capital gains at 30% under Section 115BBH. Books of accounts not required, and tax audit does not apply. Fits salaried individuals with occasional VDA trades.
Business Income Route
Active traders with organised, systematic, business-like crypto activity use ITR-3. VDA treated as business income at 30% under Section 115BBH. Books of accounts required where turnover crosses thresholds. Section 44AB tax audit applies if turnover exceeds ₹1 crore / ₹10 crore. Fits full-time crypto traders, prop traders, and bot users.
| Aspect | ITR-2 | ITR-3 |
|---|---|---|
| VDA treatment | Capital gains at 30% (Sec 115BBH) | Business income at 30% (Sec 115BBH) |
| Schedule VDA available | Yes — mandatory | Yes — mandatory |
| Books of accounts | Not required | Required if turnover crosses thresholds |
| Tax audit (Sec 44AB) | Not applicable | Applies if turnover > ₹1 crore / ₹10 crore |
| Typical profile | Salaried individuals with occasional trades | Full-time crypto traders, prop traders, bot users |
ITR-1 and ITR-4 cannot be used when VDA transactions exist. These forms lack Schedule VDA entirely. Filing ITR-1 or ITR-4 with crypto activity triggers defective-return notices under Section 139(9) — and the tax department actively flags such mismatches using AIS data.
Core Disclosure
Schedule VDA – Transaction-Wise Disclosure
Schedule VDA is the core disclosure section for every crypto income tax return. It captures every Virtual Digital Asset transfer individually — not in aggregate. Schedule VDA preparation consumes most of the filing effort for active traders, and validation rules require the Schedule VDA total to match Schedule CG.
Filing Workflow
Step-by-Step Crypto Income Tax Return Filing Process
Filing a crypto income tax return follows a clear five-stage workflow — data collection, AIS reconciliation, Schedule VDA preparation, tax computation, and e-verification. A disciplined process prevents errors and later notices.
Consolidate Data – Exchange CSVs, Wallets, P2P Records
AIS Reconciliation – The Most Important Step
Classify Transactions and Select ITR Form
Fill Schedule VDA and Compute 30% Tax
Submit, Pay Self-Assessment Tax, and E-Verify
Common Mistakes
Common Errors to Avoid in Your Crypto Income Tax Return
Several recurring errors derail crypto filings every year — from wrong form selection to missing transaction data. Awareness of these errors prevents most notice and penalty situations.
✗ Frequent Errors That Trigger Notices
- Using ITR-1 or ITR-4 despite VDA activity — no Schedule VDA
- Treating business-like trading as capital gains (or vice versa)
- Reporting VDA gains under standard capital-gains schedules
- Missing foreign exchange trades (Binance, Coinbase, OKX)
- Non-disclosure of foreign crypto holdings in Schedule FA
- Netting VDA losses against VDA gains — expressly prohibited
- Claiming gas fees, brokerage, or mining costs as deductions
- Aggregate Schedule VDA entries instead of transaction-wise
✓ What Correct Filing Looks Like
- ITR-2 (investor) or ITR-3 (trader) — chosen on profile basis
- Schedule VDA filled row-by-row for every transfer
- Each gain reported gross — never net of other losses
- All foreign exchange activity captured in Schedule VDA
- Foreign crypto wallets disclosed in Schedule FA (residents)
- 1% TDS credit reconciled to Form 26AS and AIS
- Only cost of acquisition taken as deduction
- Gift / airdrop / mining entries with correct deemed cost
Non-disclosure of foreign crypto holdings attracts Black Money Act penalties of ₹10 lakh per year. Resident and ordinarily-resident taxpayers must report foreign exchange accounts in Schedule FA — this requirement is independent of Schedule VDA. Both schedules need separate accurate completion. Our Expatriate Taxation Services team handles foreign crypto disclosure for inbound and outbound individuals.
Our Services
Complete Crypto Income Tax Return Services
N D Savla & Associates provides end-to-end crypto income tax return services across India. We cover salaried investors, full-time traders, HUFs, companies, and NRIs with Indian crypto exposure — from classification through Schedule VDA preparation to post-filing notice response.
Capital Gain vs Business Income Classification
Schedule VDA Transaction-Wise Disclosure
AIS Reconciliation, TDS Credit, and Advance Tax
Schedule FA Foreign Crypto Disclosure and Notice Response
File Your Crypto Income Tax Return Right — Before the AIS Trail Does the Talking.
Section 115BBH 30% VDA tax • Schedule VDA transaction-wise disclosure • ITR-2 or ITR-3 selection • AIS & Form 26AS reconciliation • 1% TDS credit • Schedule FA foreign-asset disclosure • Post-filing notice response.
+91 98190 00511 | +91 91670 58000 | +91 98190 00445 | nainitsavla@savlagroup.in | natasha@savlagroup.in
Contact UsF.A.Q.
Most individuals use ITR-2 when crypto is an investment. Specifically, salaried and pensioner investors with occasional VDA trades use ITR-2. Additionally, ITR-3 applies when crypto trading is organised, systematic, and business-like. Furthermore, both forms contain Schedule VDA for transaction-wise disclosure. Moreover, ITR-1 and ITR-4 cannot be used when any VDA transaction exists during the year.
Section 115BBH taxes income from transfer of Virtual Digital Assets at a flat 30%. Specifically, surcharge and 4% health & education cess apply on top. Additionally, only the cost of acquisition is deductible — no other expenses qualify. Furthermore, VDA losses cannot be set off against any income — even other VDA gains. Therefore, the 30% crypto tax is a strict, near-gross levy on every taxable transfer.
Schedule VDA captures every Virtual Digital Asset transfer transaction-wise. Specifically, each row records date of acquisition, date of transfer, cost of acquisition, consideration received, head of income, and income from transfer. Additionally, the schedule auto-populates Schedule CG item C2 in the ITR. Furthermore, validation rules require the Schedule VDA total to match Schedule CG. Moreover, aggregate-only disclosure is not allowed.
The 1% TDS under Section 194S is a credit against your final tax. Specifically, exchange-deducted TDS appears in Form 26AS and AIS. Additionally, P2P TDS deposited through Form 26QE also appears in AIS. Furthermore, this TDS credit reduces your final 30% VDA tax payable. Moreover, our TDS on Crypto P2P team supports every TDS-reconciliation step.
No. Section 115BBH allows only the cost of acquisition as a deduction. Specifically, brokerage, gas fees, platform charges, and mining costs are non-deductible. Additionally, interest on loans used for crypto purchase also fails this test. Furthermore, infrastructure and hardware expenses stay outside cost of acquisition. Therefore, the effective tax burden on a crypto income tax return is strictly gross-based.
Yes. Resident and ordinarily-resident taxpayers must report foreign crypto holdings in Schedule FA. Specifically, this covers accounts on Binance, Coinbase, OKX, and every other foreign exchange. Additionally, non-disclosure attracts Black Money Act penalties of ₹10 lakh per year. Furthermore, the Schedule FA requirement is independent of Schedule VDA. Moreover, both schedules need separate accurate completion in every crypto income tax return.
Missing the filing triggers multiple consequences. Specifically, Section 234F late-filing fee of ₹5,000 applies. Additionally, Section 270A penalty can reach 200% of tax evaded for under-reporting. Furthermore, wilful evasion attracts Section 276C prosecution. Moreover, our Income Tax Notice team handles every crypto notice end-to-end. Therefore, timely filing is far safer than defending a notice later.
