With the evolution of blockchain technology and expansion of digital economies, countries all over the world have begun amending their regulations in view of ensuring that Virtual Digital Assets (VDAs) are properly governed. India’s Income Tax Bill, 2025, sets forth a clear legal structure for VDAs under Section 2(111), and the country’s tax policies thus have corresponded to global standards.
What are Virtual Digital Assets (VDAs)?
- According to the Income tax act, ‘virtual digital asset’ refers to any information, code, number, or token (not being Indian currency or foreign currency) generated through cryptographic means or otherwise and can be called by whatever name.
- It can be transferred, stored, or traded electronically. The definition of VDA also specifically includes a non-fungible token, i.e., NFT, or any other token of similar nature, by whatever name is called.
VDAs as Property and Capital Assets
- Legal Classification & Taxation
- For the first time, the VDAs have been explicitly classified in India as:
- Property (Section 92(5)(f))
- Capital Assets (Section 76(1))
This means that any gains resulting from the transactions involving the VDAs will be taxed in a manner analogous to property deals or transactions involving stocks and bonds.
Tax Features
- Fixed 30% tax on income arising from the transfer of VDAs (no deductions allowed, except for the cost of acquisition).
- No deductions will be allowed for mining, transaction fees, or platform commissions.
- Tax Deducted at Source (TDS) at the rate of 1% will be applicable to all transactions involving VDAs, including peer to peer (P2P) transactions.
- The exemption limit is ₹50,000 for small traders and ₹10,000 for others.
Global Comparison
| Country | Legal Status of VDAs | Tax Treatment |
|---|---|---|
| U.K. | Property | Subject to Capital Gains Tax (CGT) |
| U.S. | Securities | Regulated under SEC financial market laws |
| New Zealand | Property | Subject to income tax on trades |
| UAE | Regulated by VARA | 0% personal income tax on certain gains |
Compliance and Reporting Requirements
Heightened Regulation over Crypto Transactions
- Failure to report VDA holdings will lead to an assumption of classified as undisclosed income (Section 301).
- The tax authorities are permitted to confiscate the VDAs under investigation (Section 524(1)), along with any cash, gold, or real estate.
- VDA dealers (such as exchanges, wallet providers, and traders) must report transactions in a prescribed format (Section 509).
- To enable better financial monitoring, VDAs must still be reported in Annual Information Statements (AIS).
Challenges and Road Ahead
- While the Income Tax Bill, 2025 goes a long way toward laying down taxation, there are grave regulatory gaps to fill:
- No investor protection laws.
- No standard market regulation.
- No effective enforcement mechanism against fraud.
India’s taxation approach, therefore, goes so far as to reaffirm that VDAs are a non shadow asset class. For a robust, safe digital economy, the demand for stronger financial regulation, consumer protection, and standardized compliance guidelines has become urgent.
Source: TH
