Author: Swaraj Pandey
To the Point
Following the presentation of the Union Budget 2025, the Indian government reinforced the existing stringent Virtual Digital Asset (VDA) regime: a flat 30% tax under Section 115BBH, a 1% TDS on every transfer, and a new 18% GST on platform services. Obligations to make reports have been reinforced and an absence of reporting can be treated as gains as undisclosed income and a large fine. Compliance is further reinforced by alignment with the Crypto-Asset Reporting Framework (CARF), providing global traceability and enhancing oversight. Despite the pressure on the industry to lower taxes or ease TDS, the Government resisted, preferring instead a compliance-driven posture which will potentially export trading activity overseas and solidify fiscal security.
Use of Legal Jargon
The legal architecture for Virtual Digital Assets (VDAs) that is predicted to emerge following the Union Budget of 2025 is underpinned by rigorously defined statutory language that mirrors the Government’s resolute position. Instead of the existing single-rate (i.e. capital gains) taxation of 30 percent across-the-board on transfer of VDAs without regard to the period of holding or income bracket, section 115BBH of the Income-tax Act now covers the capital gains taxation at the rate of 30 percent on the transfer of VDAs. This fiscal regime does not permit an offset of VDA losses in respect of other income, nor is it allowed to carry forward and thereby gives rise to an uncompromising basis of gain recognition. A Tax Deducted at Source (TDS) obligation of 1 % is imposed on the consideration paid at the time of every transfer, thereby ensuring that such transactions are reported in real time and their taxation is captured promptly.
Simultaneously, the Indirect Tax Act introduces an 18 % Goods and Services Tax (GST) on services provided by crypto exchanges and related platforms, which raises compliance costs and administrative burdens. Stricter disclosure measures compel taxpayers to provide precise disclosure of their VDA holdings and gains in their income tax returns; otherwise it shall scale them up in the position of being an undisclosed income, which shall invite fines and might also deliver a higher effective tax liability.
On the international level, India is converging with the Crypto-Asset Reporting Framework (CARF) to facilitate cross-border exchange of transactions and curb tax evasion. Administrative enforcement mechanisms have been reinforced, including heightened coordination between the Central Board of Direct Taxes (CBDT) and the Directorate of Enforcement, the establishment of more robust audit trails, and the deployment of real-time reporting technologies.
Combined, these provisions are highly specific in the language they use, forming a unify framework geared towards prioritizing fiscal sovereignty, transactional transparency, and robust enforcement over industry-benign flexibility that the crypto ecosystem desires.
The Proof
The Union Budget 2025 leaves no ambiguity regarding the Government’s resolve to sustain a rigorous tax and regulatory regime for Virtual Digital Assets (VDAs). Flat-rate taxation remains at the core of the framework. In terms of Section 115BBH of the Income-tax Act, such gains which realise through transfer of a VDA remain liable at central rate of tax 30 percent regardless of asset type as well as holding period or the income group of the taxpayer. The provision brings no benefit to long-term holdings and applies to both individuals and corporations as well as other legal persons. It is based on this flat-rate construct, that the government contends that crypto gains are speculative income that should be treated like windfall or lottery proceeds instead of the familiar type of capital gains.
Concurrently, the robust TDS regime is preserved. A 1 percent Tax Deducted at Source (TDS) is imposed on every VDA transaction, irrespective of whether the trade yields a profit or a loss and regardless of any prescribed exemption threshold. Initial proposals on this measure were made in 2022, with the aim of securing data close to real-time, thus allowing full and rich data of crypto activity to be tracked in terms of audit. It, however, reduces the liquidity of active traders and increases the operational cost because the deduction is based on gross transaction value but not on gains received.
From mid-2025, indirect taxation of VDAs has intensified further with the imposition of 18 percent Goods and Services Tax (GST) on services provided by crypto exchanges and platforms. This fee includes trading charges, wallet services and others. Despite the fact that the GST imposes no direct taxation of the fundamental asset, it increases the costs of users progressively, which may discourage their activity on domestic platforms and shift towards unregulated or foreign exchanges.
Compliance enforcement has intensified markedly. The Budget 2025 broadens the legal classification of VDA-related income, introducing an NLP (non-literal production) treatment that enables tax authorities to designate unreported or inaccurately reported digital asset earnings as “undisclosed income.” This classification attracts high penalties and the imposition of the same vulnerable taxpayers to prosecution about the Income-tax Act. Augmented audit procedures, AI-driven transaction monitoring, and integrated reporting with collateral financial databases have become crucial instruments for the Central Board of Direct Taxes (CBDT).
The Government is also advancing toward international compliance standards through the Crypto-Asset Reporting Framework (CARF), a global initiative under the OECD designed to facilitate automatic exchange of information among jurisdictions. When instituted, CARF will force local exchanges and some offshore platforms where Indians transact business to provide taxation bodies with detailed information about the transactions, eliminating cross border cash leakage and reducing exposure of tax evasion. This will place India in a global compliance ecosystem, making crypto transactions more trackable.
Budget 2025 failed to heed calls by industry lobby groups and crypto exchanges to have some form of tax concessions. Suggestions to bring about TDS rate down, allow set-off of losses or to, reduce tax rate of 30 percent rate were not accepted. The government rejection is an indication that it as a policy set value on regulatory control and a fiscal sovereignty over market expansion or investor incentive. Such inflexibility can actually promote operations to go offshore or underground, but also solidifies India as one of the strictest jurisdictions when selecting a jurisdiction to pursue crypto compliance.
Overall, Budget 2025 provides continuity over reform, however, in a policy trajectory of high-tax, high-compliance with VDAs. The industry interprets this as an opportunity lost on a well-balanced policy, and the state is left with its persistent determination to sustain transparency, traceability and discourage wild speculation on the crypto market.
Abstract
The Finance Act that accompanies the Union Budget 2025 reaffirms India’s steadfast and uncompromising commitment to levying tax on Virtual Digital Assets (VDAs). Profits are charged at a rate of 30 % under the provisions of Section 115BBH of the Income-tax Act, which was introduced by Finance Act 2005. VDA transfers contain profits that are charged at a flat rate. Loss set-off and deductions other than the acquisition cost are now not allowed. The mandatory Tax Deducted at Source (TDS) of 1 % on every transaction, intended to facilitate real-time monitoring of market activity, has likewise been retained.
Moreover, the government has introduced an 18 % Goods and Services Tax (GST) on platform services such as trading, custody, and wallet operations, thereby augmenting indirect costs for investors and traders.
Simultaneously, the tax net has been enlarged: holding of VDA and profits have been made mandatory in the tax returns. Non-compliances could lead to being classified as undisclosed income, subjecting them to more penalties, and other possible crimes. India is simultaneously deepening its participation in the Crypto-Asset Reporting Framework (CARF), thereby facilitating the automatic exchange of crypto transaction data among jurisdictions and curbing both cross-border tax evasion and illicit capital flows.
The Budget has stuck to the existing structure without any relaxations despite a longpersistent lobbying by crypto exchanges and industry organisations to decrease the current TDS rates, eliminate the flat tax, or enable the adjustment of losses. This policy position means that the government held to a policy priority in transparency, traceability, and fiscal sovereignty as opposed to market liberalization or investor relief. The result is a government with considerable compliance demands and with tax rates that stress operating control and surmounting shelter in an industry that is viewed by itself as erratic and risky.
Case Laws
At present, no Indian judicial precedents after the 2025 Union Budget directly interpret Section 115BBH of the Income-tax Act or the subsequent tax regime governing Virtual Digital Assets (VDAs). However, prior rulings and developed positions of law give the necessary background to future litigation in the field. In the case of Internet and Mobile Association of India v. Reserve Bank of India (2020) remains the most influential example, in which the Court held that the RBI’s banking restriction on cryptocurrency transactions constituted disproportionate regulation and therefore could not stand. It was not about taxes, but regulation; however, the ruling confirmed that crypto trades are legal under the Constitution and set up a constitutional precedent.
Concerning indirect taxation, earlier judgments may influence how the Goods and Services Tax (GST) is applied to VDA transactions. In Union of India v. Mohit Minerals Pvt. Ltd. (2022), the Supreme Court clarified that GST is levied on imports, while Skill Lotto Solutions Pvt. Ltd. v. Union of India (2020) upheld GST on lottery and betting. Since these rulings were executed in speculative or risky operations, they might influence judicial thinking on GST on VDA platform services.
There are no specific case laws that have been considered so far with regard to the taxation of unreported crypto income and whether such income should be considered as undisclosed income under the Income-tax Act. However, provisions such as Section 271AAC—which mandates penalties for unexplained income—and precedents like CIT v. Smt. P.K. Noorjahan (1999), which emphasized the discretionary nature of such penalties, may become pivotal in disputes over crypto disclosure failures.
The events that surround this issue are likely to centre around three main points, namely: whether the TDS liability can be applied even when the trades do not yield profits, whether the responsibility to deduct and pay GST has to be squarely placed at the end of crypto-platforms and whether deficient reporting of VDA income qualifies as concealment and as such subject to prosecution. The decision of such cases by tax tribunals or superior courts will form the next wave of jurisprudence that will define crypto taxation regime in India.
Conclusion
Union Budget 2025, announced on 17 February 2025, has entrenched the prospect of ruthless crypto-tax in India, making no sacrifice in the name of traders or investors. Gains derived from Virtual Digital Assets (VDAs) remain subject to a flat 30% rate under Section 115BBH of the Income-tax Act, and a 1 % Tax Deducted at Source (TDS) is levied on every transaction irrespective of the outcome. Mid-year in 2025, the administration imposed an 18 % Goods and Services Tax (GST) on platform services, thereby increasing both the operating costs of exchanges and the expenses incurred by users. Duties of disclosure have been tightened and failing to declare holdings or gains may fall into the category of undisclosed income which will attract enhanced penalty, and risk prosecution.
In the international arena, India’s prompt adoption of the Crypto-Asset Reporting Framework (CARF) signals its intention to align with global tax cooperation mechanisms and to ensure that cross-border crypto flows remain observable by authorities. Although the crypto industry has been persistently demanding the change of tax rates, regulation of the range of TDS, and the ability to make losses offsets, the government has remained adamant. This position can trigger further movement of activity in the market overseas and present an added risk of litigation in regards to GST application, and reporting requirements. The policy places a clear preference on the traceability, compliance, and fiscal sovereignty over any market liberalization or growth enticements.
FAQs
1. What is the current tax on crypto profits in India?
A flat 30% tax under Section 115BBH applies to gains from the transfer of VDAs like cryptocurrencies and NFTs. Only acquisition cost can be deducted; no other expenses or losses can be set off.
2. Is TDS still applicable on crypto?
Yes. A 1% TDS is deducted on transactions involving VDAs, regardless of profit or loss and applies across platforms.
3. Are there new GST rules for crypto?
Indeed. Platforms now charge 18% GST on services rendered to users, adding a cost burden and compliance requirement.
4. Did Budget 2025 offer any tax relief to crypto investors?
No. There were no amendments to reduce crypto tax rates, TDS, or GST. Authorities reaffirmed the existing framework.
5. What are the new reporting requirements?
Disclosure obligations have intensified. Crypto income may be treated as undisclosed income, inviting stricter tax scrutiny. Additionally, India is working to implement CARF to exchange cross-border data on crypto transactions.
