Crypto/VDA Taxation: Income-tax Act 1961 vs 2025 Framework

Taxation of Crypto/VDAs in India: A Comparative Analysis of the Income Tax Act, 1961 vs New Income Tax Act, 2025 Framework

1. Introduction

The taxation of Virtual Digital Assets (VDAs), including cryptocurrencies and NFTs, marks one of the most significant evolutions in India’s fiscal policy in recent years.

Initially introduced through the Income Tax Act, 1961, via amendments in the Finance Act, 2022, the regulatory framework aimed at establishing control and traceability in a rapidly growing digital economy.

With the proposed Income Tax Act, 2025, the government has taken a more structured and stringent approach, emphasizing comprehensive coverage, real-time tracking, and enhanced compliance mechanisms.

2. TDS on Virtual Digital Assets: Old vs New Regime

Under the earlier framework, Section 194S of the Income Tax Act, 1961 governed Tax Deducted at Source (TDS) on VDA transactions. The provision mandated a 1% TDS on transfer of VDAs, subject to specified thresholds.

Example: Consider Mr. Sai, a salaried individual engaging occasionally in cryptocurrency investments. If Mr. Sai purchased crypto assets worth ₹8,000 during a financial year, no TDS was applicable since the transaction did not exceed the ₹10,000 threshold for non-specified persons.

Similarly, on the other hand, Mr. Kiran, a small taxpayer qualifying as a specified person, could transact up to ₹50,000 without triggering TDS liability.

However, complexities arose in cases involving non-monetary consideration. Suppose Mr. Sai exchanged one cryptocurrency for another (crypto-to-crypto transaction). In such scenarios, the law requires that TDS be ensured and deposited before releasing the asset, creating operational challenges for exchanges and intermediaries.

 Shift Under the New Law (Income Tax Act, 2025)

The proposed Section 393 table 1 serial No. 8(vi) introduces a paradigm shift. While the TDS rate broadly remains aligned at 1%, the most critical change is the removal of threshold limits.

This implies that even the smallest transaction attracts TDS.

To illustrate, consider Mr. Bhaskar, who purchases cryptocurrency worth ₹1,000 through a digital exchange. Under the old act, this transaction would have been exempt from TDS. Under the new act, however, TDS becomes applicable from the very first rupee.

Additionally, the scope of responsibility has been significantly widened. Exchanges, trading platforms, and even facilitators are explicitly brought within the compliance net. This ensures that tax deduction is systematically enforced at the ecosystem level rather than relying solely on individual taxpayers.

The compliance burden, therefore, increases substantially. Every micro-transaction is now reportable and taxable at source, leading to higher administrative responsibility for both taxpayers and intermediaries.

3. Taxation of VDA Income: Continuity with Structural Changes

The taxation of income arising from VDAs continues to be governed by a flat rate regime. Under Section 115BBH of the Income Tax Act, 1961, such income was taxed at a rate of 30%, one of the highest applicable rates in the tax structure.

Take the case of Mr. Sai, who earns a profit of ₹1,00,000 from trading in cryptocurrencies. Under the old law, he is liable to pay tax at 30%, irrespective of his income slab.

The law allowed only one deduction — the cost of acquisition. No other expenses, such as transaction fees, advisory charges, or platform commissions, were permitted as deductions.

Further, restrictions were stringent:

• Losses from VDA transactions could not be set off against any other income.
• Losses could not be carried forward to subsequent years.

Position Under the New Act, 2025

The new legislation, under Section 194 (as per the proposed framework), retains this taxation structure almost entirely.

For example, if Mr. Kiran incurs a loss of ₹50,000 in crypto trading and earns ₹70,000 from another crypto transaction, he cannot offset the loss against the gain. He is still taxed on the full ₹70,000 at 30%.

Similarly, if Mr. Kumar incurs a loss in one financial year, he cannot carry it forward to future years.

Thus, while the numbering and structuring of provisions have changed, the substantive tax treatment remains unchanged.

4. Conceptual Evolution: From Regulation to Surveillance

The transition from the 1961 framework to the 2025 Act reflects a deeper policy shift.

Under the earlier regime, the government’s approach was cautious. The introduction of TDS at 1% served primarily as a tracking mechanism, while thresholds ensured that small investors were not overburdened.

For instance, Mr. Bhaskar, a casual investor, could experiment with small-value transactions without facing compliance complexities.

In contrast, the new regime reflects a zero-threshold, full-coverage model. Every transaction, regardless of size, becomes traceable.

Consider Mr. Sai, who executes multiple small trades daily through a crypto exchange. Under the new law, each of these transactions is subject to TDS, creating a detailed financial trail. This aligns India’s taxation approach with global best practices in digital asset monitoring, particularly in the context of Web3 ecosystems and decentralized finance (DeFi).

5. Practical Comparative Illustration

Let us compare a simple scenario:

• Under the Old Law:

Mr. Kiran purchases cryptocurrency worth ₹8,000. Since this amount falls below the threshold, no TDS is deducted.

• Under the New Law:

The same ₹8,000 transaction attracts TDS immediately, despite being a small-value transaction.

Tax Acts6. Conclusion

The new Income Tax Act, 2025, marks a clear transition toward stringent regulation and comprehensive monitoring of virtual digital asset transactions.

While the tax rate and computation mechanism remain unchanged, the removal of thresholds and expansion of applicability dramatically increase compliance requirements.

In essence:

• The old regime focused on introducing and stabilizing VDA taxation.
• The new regime emphasizes complete traceability, broader coverage, and tighter enforcement.

For taxpayers like Mr. Sai, Mr. Kiran, Mr. Kumar, and Mr. Bhaskar, the implication is clear:
Even the smallest crypto transaction now falls within the tax net, making disciplined record-keeping and compliance no longer optional, but essential.