India’s Income Tax Bill, 2025 and the Regulation of VDAs

As blockchain technology and digital economies expand, global governments are working to classify, regulate, and tax Virtual Digital Assets (VDAs). In response, India’s Income Tax Bill, 2025 introduces a comprehensive tax framework for VDAs, aligning with global taxation policies followed in the U.K., U.S., Singapore, Australia, New Zealand, and the UAE.

What Are Virtual Digital Assets (VDAs)?

• Virtual Digital Assets (VDAs) include:
  • Cryptocurrencies such as Bitcoin and Ethereum
  • Non-Fungible Tokens (NFTs)
  • Other blockchain-based digital assets

What Does the Income Tax Bill, 2025 Say About VDAs?

• VDAs Are Now Classified as Property & Capital Assets
  • Section 92(5)(f) treats VDAs as taxable property, similar to real estate or stocks.
  • Section 76(1) ensures that profits from selling VDAs are taxed like capital gains.
• This classification aligns with global practices:
  • In the United Kingdom, HM Revenue & Customs (HMRC) recognizes crypto as property, subject to Capital Gains Tax.
  • New Zealand’s tax department treats crypto as taxable property.

How Are VDAs Taxed?

• A flat 30 percent tax is applied to income from VDA transfers.
• No deductions are allowed except for the cost of acquisition.
• A one percent Tax Deducted at Source (TDS) applies on all transactions, including peer-to-peer transactions.
• The TDS exemption limit is set at Rs 50,000 for small traders and Rs 10,000 for others.
  • Expenses such as mining costs, platform fees, and gas fees cannot be deducted from taxable income.
• In comparison with other countries: The United Arab Emirates allows a zero percent personal tax on VDA gains under certain conditions. The United Kingdom applies Capital Gains Tax on crypto profits.
• Undisclosed Income & Asset Seizure
  • Section 301 states that unreported VDAs will be classified as undisclosed income and taxed accordingly.
  • Section 524(1) allows the government to seize VDAs in tax raids, similar to gold or cash.
  • This aligns with global practices, such as in the United Kingdom, where courts can freeze or seize crypto assets in legal disputes.
• Mandatory Reporting of VDA Transactions
  • Section 509 mandates that crypto exchanges, wallet providers, and traders report transactions in a prescribed format to prevent money laundering and ensure transparency.
  • VDAs must be included in Annual Information Statements (AIS), which allows tax authorities to automatically track all crypto transactions.

Why Is This Important (Significance)?

• Brings VDAs under a legal and tax framework.
• Prevents misuse of digital assets for tax evasion.
• Aligns India’s tax policies with international standards.
• What’s missing?
  • There is no clear investor protection law for VDA holders.
  • A structured market regulation framework has not been introduced.
  • There are no standardized guidelines for compliance and enforcement.