Crypto gains or losses? Union Budget 2025 imposes new tax challenges for traders

Cryptocurrencies, including Bitcoin and Ethereum, have evolved from niche digital assets to mainstream investment options in India, drawing attention from both investors and tax authorities.

The Finance Act of 2022 established a framework to tax Virtual Digital Assets (VDAs), including cryptocurrencies, with a flat tax rate of 30% on income from their transfer, in addition to any applicable surcharge and cess. The 2025 Budget proposals expand the definition of VDAs to cover any crypto-asset that relies on cryptographically secured distributed ledger technology to validate transactions.

Under the new rules, salaried individuals must pay a 1% Tax Deducted at Source (TDS) on VDA transfers if the transaction exceeds ₹10,000, while for business persons, the threshold is ₹50,000. The only deduction allowed from VDA sale proceeds is the cost of acquisition, with transaction fees and related expenses ineligible for tax deduction.

Importantly, losses from VDAs cannot be offset against other income, nor can losses from one VDA be set off against gains from another.

Example:

Ravi sold Ethereum at a loss of ₹5,00,000 and made a gain of ₹8,00,000 from selling Bitcoin. Additionally, Ravi has long-term capital gains of ₹6,00,000 from listed shares.

Ravi cannot offset his loss of ₹5,00,000 from Ethereum against the gain from Bitcoin. Thus, he will be taxed on a profit of ₹3,00,000 from the sale of Bitcoin.

Similarly, the loss from Ethereum cannot be set off against the gains from the sale of listed shares, and Ravi will pay tax on the shares at the long-term capital gains rate of 12.5%.

Furthermore, the loss from Ethereum cannot be carried forward to future years.

Tax on crypto is applicable in several scenarios:

• When crypto is sold for goods or services.
• When exchanged for other cryptocurrencies.
• When received as a gift.

It is crucial for individuals involved in cryptocurrency transactions to report their income from VDAs in Schedule VDA of their annual Income Tax Returns (ITR), which would be either ITR-2 or ITR-3. Failing to accurately report VDA income can result in penalties, along with interest on any unpaid tax.