Understanding Cryptocurrency and VDAs in India

FAQs on Cryptocurrency and VDAs in India

1. What is the legal status of cryptocurrency in India?

Cryptocurrency is currently neither fully legal nor illegal in India. This means:

• You can buy, sell, or hold crypto assets (e.g., Bitcoin, Ethereum).
• They are not recognised as legal tender like the Indian Rupee, so official payments cannot be made with them.
• The government regulates crypto only for tax purposes, not as a currency.

2. What are VDAs under Indian law?

VDAs (Virtual Digital Assets) include:

• Cryptocurrencies (e.g., Bitcoin, Ethereum)
• NFTs (Non-Fungible Tokens)
• Other digital assets notified by the government

These assets are taxable even if they are not fully regulated yet.

3. How are VDAs taxed in India?

From FY 2022–23, the government introduced a clear tax policy:

• 30% flat tax on profits from VDAs
• Surcharge (as per slab) and 4% cess on the tax amount
• 1% TDS on all VDA transactions (profit or loss), similar to securities transaction tax

4. Where should crypto transactions be disclosed in the ITR?

Taxpayers must declare VDA income transaction-wise in Schedule VDA of:

• ITR-2 (for salaried individuals with capital gains)
• ITR-3 (for business/profession income)

5. Why did 44,000 taxpayers receive notices?

The Income Tax Department found many individuals trading or investing in crypto without reporting these activities in their ITRs:

• Over 44,000 emails and messages were sent to such taxpayers
• These were based on digital data collected from exchanges and other platforms
• The goal was to encourage voluntary compliance before any legal action

6. What is the NUDGE campaign?

NUDGE stands for Non-Intrusive Usage of Data to Guide and Enable. It is an awareness drive by the CBDT to:

• Alert taxpayers who may have missed reporting VDA income
• Prevent tax evasion using soft reminders
• Encourage honest and timely filing without formal scrutiny

7. What legal action is taken if crypto gains are not disclosed?

If the CBDT finds undisclosed crypto income, it can act under:

• The Income Tax Act
• The Black Money Act, 2015 (for assets held abroad)

Actions may include penalties, interest, and in serious cases, prosecution.