Filing ITR for crypto earnings: Investment banker warns of tax filing mistakes, notes 30% flat tax on VDAs

Investment banker and business educator Sarthak Ahuja has issued a strong caution to cryptocurrency investors and traders in India, urging them to be extremely vigilant while filing their Income Tax Returns (ITR). With the taxation regime for virtual digital assets (VDAs) such as cryptocurrencies and NFTs now firmly codified, he noted that many taxpayers remain unaware of the correct treatment of profits and losses, which can expose them to serious compliance risks.

In India, the government has mandated a flat 30% tax on capital gains from the transfer of VDAs, along with a 1% Tax Deducted at Source (TDS) on sale consideration. Introduced in 2022, this regime was intended to increase transparency in the rapidly growing but volatile digital asset market.

Highlighting common mistakes, Ahuja wrote in a LinkedIn post that while investors may earn profits in some trades and losses in others, the tax framework does not allow any set-off. “You may have made profits in some crypto trade, and losses in some other. However, for tax purposes, all your losses are to be ignored and they cannot be set off against the profits,” he explained.

He further clarified that taxpayers must aggregate all their profitable trades and pay a direct 30% tax on the total gains. “Do not try to hide crypto transactions while filing your ITR, as the government has information from exchanges, as well as a 1% TDS on crypto transactions. So if you fail to report, you will definitely get a notice,” Ahuja warned.

The banker also emphasized the importance of correct income classification. “You can file the profits under capital gains or under business profits. Do speak with your tax advisor on the same as it would depend on how much you have traded and with what frequency. But do not just copy the laws as you apply to F&O trading in stocks on to this. The turnover calculation, gains calculation, set off and taxes are done differently,” he said.

Adding another layer of caution, Ahuja noted that losses from VDAs cannot be carried forward to subsequent years. As a result, every trade or line item must be recorded properly. He strongly advised taxpayers to consult a Chartered Accountant (CA) or tax advisor to avoid filing errors.

Tax rules for cryptos

As per the Income Tax Act, income from the transfer of VDAs—whether by trading, selling, or swapping—is taxed at a flat 30% plus 4% cess. No deductions are permitted apart from the cost of acquisition, and both short-term and long-term gains attract the same tax rate. Losses from one crypto asset cannot be offset against gains from another, nor against any other income source.

Section 194S additionally requires a 1% TDS on the sale consideration if annual transactions exceed ₹50,000 (₹10,000 in some cases). Payments made in kind must also account for TDS, with buyers responsible for covering any shortfall.

Aspect	Rule/Rate
Tax Rate on Gains	Flat 30% on profits from VDAs (plus 4% cess)
Loss Set-Off	Not allowed; losses cannot be set off against other gains or income
Loss Carry Forward	Not permitted; cannot carry forward crypto losses to future years
TDS on Sale (Section 194S)	1% of sale consideration (if annual transactions exceed ₹50,000; ₹10,000 in some cases)
Deductions Allowed	Only the cost of acquisition; no other deductions or exemptions permitted
Classification of Income	- Capital Gains: if held as an investment - Business Income: if frequent trading - Other Sources: if received via gifts, mining, airdrops
Reporting Requirement	Mandatory disclosure under Schedule VDA in ITR from FY 2025-26

 

Budget 2025 Update

The Union Budget 2025 has gone a step further by introducing a new reporting framework. From FY 2025-26, all individuals and entities dealing in VDAs must disclose their gains under a dedicated Schedule VDA (Section 158B) of the Income Tax Act. Exchanges and intermediaries will also be mandated to submit detailed transaction reports to tax authorities, closing gaps in compliance and reducing scope for tax evasion.

However, the industry has expressed concerns. Sumit Gupta, CEO of CoinDCX, argued that India’s 1% TDS rule is counterproductive, driving millions of users to offshore exchanges. Between July 2022 and July 2023, an estimated $42 billion in trading volume reportedly moved abroad, resulting in a $4.2 billion loss in potential tax revenues.

What's your takeaway

Ahuja’s advice underscores a critical reality for India’s growing crypto community: while digital assets offer opportunities, their tax treatment is stringent and unforgiving. With authorities already tracking transactions through exchanges and TDS, investors must prioritize accurate reporting and professional guidance to avoid penalties and regulatory scrutiny.