I. WHAT IS A DIGITAL ASSET?

Under Sec 2(47A) Income Tax Act, 1961 - Virtual Digital Asset (VDA) means:

1. Any information or code or number or token generated through cryptographic means or otherwise
2. Any digital representation of value exchanged with or without consideration, with promise of having inherent value
3. NFT as notified - any other digital asset as Central Govt may notify

Includes: Bitcoin, Ethereum, USDT, BNB, MATIC, NFTs, DeFi tokens
Excludes: Indian currency, foreign currency, Gift cards, loyalty points, website subscriptions - CBDT Notification No. 75/2022.

II. TAXATION FRAMEWORK - INDIA

India follows "Regulation through Taxation" - tax first, regulate later.

1. Income Tax - Sec 115BBH (w.e.f. AY 2023-24)

Income from transfer of VDA taxed at flat 30% + surcharge + 4% cess = effective 31.2%

Brutal features - No other asset is taxed like this:

• No deduction: Only Cost of Acquisition allowed. No brokerage, no platform fees, no internet cost, no mining electricity.
• No loss set-off: Loss from one VDA cannot be set off against gain from another VDA. Loss from crypto cannot be set off against salary, business, capital gains.
• No carry forward: VDA loss dies in same financial year.
• No indexation, No slab: Even if your total income is Rs 3 lakh, crypto gain is still 30%.
• Gift: If crypto gifted > Rs 50,000, taxable in hands of receiver as Income from Other Sources at slab rate, not 30%. But when receiver later sells, it will be taxed at 30% under 115BBH.

Example: Mr. Sai earns profit of Rs 1,00,000 from trading in cryptocurrencies. Under old law, he is liable to pay tax at 30%, irrespective of his income slab.

If he makes Profit Rs 1 lakh in BTC and Loss Rs 80k in ETH in same year - He still pays tax on Rs 1 lakh = Rs 30,000. Rs 80k loss wasted.

2. TDS - Sec 194S - 1% TDS on Transfer

Every time you sell VDA (even at loss), buyer must deduct 1% TDS on sale consideration, not on profit.

• If transaction on Indian exchange (CoinDCX, WazirX): Exchange deducts.
• P2P: Buyer deducts and deposits via Form 26QE.
• Threshold: No TDS if aggregate < Rs 10,000 (Rs 50,000 for specified small persons) in a FY.
• For NRI: TDS still applies, plus you may have to file return.

This 1% is not final tax. It is advance tax. You claim credit in ITR.

3. GST

No GST on sale/purchase of VDA itself. GST @ 18% only on service charges / commission charged by platform.

4. Reporting in ITR

New Schedule VDA in ITR-2, ITR-3. You must report:

• Date of acquisition & transfer
• Cost and consideration
• Head-wise: Not under Capital Gains, but separate schedule "Income from VDA under 115BBH"

If turnover > Rs 10 cr, need Tax Audit - Whether crypto trading is business income? CBDT says 115BBH overrides.

PMLA: Since March 2023, crypto exchanges are Reporting Entities under Prevention of Money Laundering Act - must do KYC, report suspicious transactions to FIU-IND.

III. CASE LAWS

A. INDIAN CASE LAWS

1. Internet and Mobile Association of India vs RBI (2020) 10 SCC 274 - Supreme Court - The Foundation

RBI Circular of 2018 banned banks from dealing with crypto exchanges. SC quashed circular as disproportionate under Article 19(1)(g). Held: RBI had no evidence of harm, crypto is not banned, but not legal tender. This reopened banking for exchanges. However, Court left policy making to legislature - leading to taxation in 2022.

2. Madras High Court - W.P. No. 25633 of 2024 - Mohan Babu vs State (2024) - Crypto as Property

HC held Cryptocurrency is Property under law, capable of being attached, inherited, and is an asset for taxation. Recognized that:

The Finance Act, 2022 introduced section 115BBH, taxing transfers of virtual digital assets at 30%, with tax deducted at source at 1% under section 194S. This taxation framework constitutes legislative recognition that cryptocurrency is an asset capable of generating taxable income.

This ruling is crucial for attachment cases - if crypto is property, police can seize, ED can attach under PMLA, wife can claim in divorce.

3. ITAT Jodhpur - Bitcoin Investor vs ITO - 88.55 lakh addition case - 2024

Assessee had loss of Rs 3.34 lakh in BTC but AO added Rs 88.55 lakh as unexplained investment under Sec 69. ITAT held that if assessee can prove source of funds and blockchain trail, addition cannot be made merely because crypto is volatile. Set aside addition, but confirmed 30% tax on any profit under new law applies prospectively, not for earlier years where it was capital gains.

4. AAR - Telangana - In Re: Masters India

Whether crypto exchange services liable for GST? AAR held facilitation fees taxable at 18% GST, but transfer of VDA itself not supply of goods/services.

B. INTERNATIONAL CASE LAWS

5. US - IRS vs Coinbase - United States vs Coinbase Inc (N.D. Cal 2017)
IRS obtained John Doe summons to get 14,355 customer records. Established principle: Crypto transactions are not anonymous for tax. Led to IRS Question on Form 1040: "Did you receive, sell, send, exchange any digital asset?"

6. US - Jarrett vs USA - Tezos Staking (2022)
Taxpayers argued staking rewards should not be taxed at creation, only at sale. Court dismissed but IRS later gave refund - creating debate on tax timing that India has avoided by taxing only on transfer.

7. UK - HMRC vs Loss Relief - Robertson vs HMRC UKFTT
UK treats crypto as property for Capital Gains Tax, not 30% flat. Allows loss set-off. Indian courts cite this to argue Indian law is harsh but valid - Parliament has sovereign right to tax at flat rate.[2021]

8. EU - CJEU Case C-264/14 - Skatteverket vs David Hedqvist (2015)
EU held Bitcoin exchange from fiat to BTC is exempt from VAT as it is currency transaction. India took opposite - GST on fees only, not on value - partially aligned.

IV. US vs INDIA - QUICK COMPARISON

V. What You Must Do as Indian Resident in Ghaziabad

1. Maintain Ledger: Every trade - date, pair, cost in INR (use INR conversion rate on that day from RBI reference), exchange.
2. Pay TDS Default: If exchange not deducting (foreign exchange Binance), you must deduct u/s 194S and file Form 26QE within 30 days.
3. File ITR: Even if only loss, disclose in Schedule VDA. Non-disclosure = 100% penalty + prosecution under Sec 276C.
4. No Planning: Do not try to show crypto as business income to claim expenses. CBDT Circular No. 13/2022 says Sec 115BBH is overriding.