The Finance Act, 2022 is special for the tax policy framework of India. Through this, cryptocurrency and other digital assets were brought under tax. For taxation purposes, such assets are called Virtual Digital Assets (VDA). Finance Minister Nirmala Sitharaman, in her 2022 budget speech, said that in view of the increasing transactions in digital assets, it has become necessary to introduce a separate tax framework.
According to data presented in Parliament, the value of cryptocurrency transactions in FY25 stood at more than Rs 51,000 crore. This is 41 percent more than a year ago. With this, TDS collection reached Rs 511.8 crore. This indicates that VDA has now become a major segment of the Indian financial market.
Despite this, the rules and regulations regarding VDA are not clear. The tax framework introduced in 2022 is quite strict. Profits from VDA are taxed at a flat rate of 30 percent. No deduction or carry forward of loss is allowed. Due to these strict tax rules and regulatory uncertainty, the trading volume is shifting towards foreign exchanges.
The government has taken several steps to increase compliance and transparency in VDA transactions. Virtual asset service providers have to register themselves with the Financial Intelligence Unit. Also, strict KYC and anti-money laundering rules have to be followed. The reporting rules for VDA transactions were further expanded in the Union Budget 2025.
India has promised to implement the OECD’s crypto-asset reporting framework by 2027. The Finance Ministry is expected to sign the Multilateral Competent Authority Agreement next year. With this, global transparency standards will be implemented from VDA. In such a situation, Union Budget 2026 is a big opportunity to rationalize the tax rules of digital assets. The government may focus on the following issues:
-Review of tax regime
TDS rates on VDA transactions can be reduced. Losses may be allowed to be set-off or carried forward. 30 percent tax on profit can be reduced. This will increase the volume of VDA transactions and increase interest in compliance. Also, investors will not need to use foreign exchanges.
-Category of profit from VDA
Currently, the category of profit from crypto in India has not been decided. This time the picture is not clear whether it will be considered as capital asset or stock-in-trade. Although the tax rates are the same, the income category affects the determination of compliance, disclosure requirements and cost of acquisition. Therefore, it is important to decide whether the profits will be treated as business income or capital gains.
-Determination of Cost of Acquisition
Determining the cost of acquisition is another challenge while calculating gains. Inventories are measured at cost or NRV. The lesser of these applies. There is confusion as to where the VDA is kept in-stock trade/inventory. In such cases, there is a need to clarify the situation for the correct method of valuation.
-Valuation of gifted VDA
Where VDA is received as a gift, the recipient is liable to tax under section 56. However, in the absence of a prescribed FMV valuation mechanism, the position regarding determining the tax liability of such recipients is unclear.
Also read: Union Budget 2026: Old regime taxpayers will get a big gift, deduction limit under section 80C will increase.
-Tax for non-residents
In case of non-residents, if the income is earned in India, then tax on it is made in India. In the case of VDA, the big issue is its status, because intangible assets are generally governed by the rule of residence of the owner for tax purposes in India.
Amit Bablani-Partner, Deloitte India