As digital economies expand and blockchain technology reshapes global finance, governments worldwide are grappling with the classification, regulation and taxation of Virtual Digital Assets (VDAs). India’s Income Tax Bill, 2025 introduces a comprehensive legal framework for VDAs defined in Section 2(111), aligning the country’s tax structure with global precedents. This move is crucial, considering how major economies like the U.K., the U.S., Singapore, Australia, New Zealand, and the UAE have approached VDAs — primarily as property or securities.
VDAs as property and capital assets
For the first time in India, the Income Tax Bill, 2025 explicitly treats VDAs as property (Section 92 (5)(f)) and capital assets. This classification has far-reaching consequences in terms of taxation, compliance, and legal recognition. The bill categorically states that VDAs, which include crypto assets, Non-Fungible Tokens (NFTs), and similar digital assets, should be considered property. This move aligns India with global practices, where digital assets are either classified as securities (like in the U.S.) or property (like in the U.K., Australia, and New Zealand).
VDAs are classified as capital assets under Section 76(1). This means that any gains arising from their sale, transfer, or exchange will be taxed under capital gains provisions, similar to real estate, stocks, and bonds. For example, if an individual purchases Bitcoin at ₹10 lakh and sells it for ₹20 lakh, the ₹10 lakh profit will be subject to capital gains tax — either short-term or long-term, depending on the holding period. By treating VDAs as capital assets, the government ensures that transactions are subject to standard asset taxation principles, preventing their misuse as unregulated financial instruments. This classification is similar to the U.K. policy, where HM Revenue & Customs (HMRC) recognises crypto assets as property for tax purposes, subjecting them to the Capital Gains Tax (CGT).
Likewise, New Zealand’s Inland Revenue Department also treats crypto assets as property, making them subject to income tax on trades.
Continuing the precedent set in 2022, the bill imposes a 30% tax on income from VDA transfers.
Unlike traditional capital assets, no deductions (other than the cost of acquisition) are allowed. This means that expenses related to mining, transaction fees, platform commissions, and gas fees cannot be deducted when calculating taxable income. For instance, if an investor buys Ethereum for ₹5 lakh and sells it for ₹7 lakh, the ₹2 lakh profit is taxed at a flat 30% — with no relief for transaction costs. This tax treatment is harsher than that in the UAE, where the Virtual Assets Regulatory Authority (VARA) allows businesses and individuals to hold and trade VDAs under regulated conditions, with 0% personal income tax on gains in certain cases. Similar to previous amendments, Section 393 states a 1% TDS (Tax Deducted at Source) on transfers of VDAs. This applies even in peer-to-peer (P2P) transactions and ensures that the government tracks large crypto transactions. The threshold for TDS exemption is ₹50,000 for small traders and ₹10,000 for others.
On the need to report
Another crucial provision is the inclusion of VDAs in undisclosed income taxation and asset seizure regulations. Section 301 states that if an individual fails to report VDA holdings in their tax filings, they can be classified as undisclosed income and taxed accordingly. Furthermore, Section 524(1) allows tax authorities to seize VDAs during investigations or tax raids, similar to how cash, gold, or real estate is confiscated in cases of tax evasion. This aligns with global enforcement trends. The U.K. High Court has ruled that crypto assets can be considered property, allowing courts to freeze or seize them in legal disputes. By treating VDAs as property for seizure purposes, India ensures that crypto-assets do not remain a shadow asset class, immune from regulatory oversight.
Under Section 509, any entity dealing in crypto assets — including exchanges, wallet providers, and even individual traders — is required to report transactions in a prescribed format. This provision mandates compliance from platforms facilitating crypto trades, making it harder to launder money through digital assets. The bill also mandates that VDAs be included in Annual Information Statements (AIS), ensuring that all crypto transactions are automatically recorded in taxpayers’ financial profiles.
A global standard
India’s decision to treat VDAs as property and capital assets is a step towards aligning with international legal standards. The United States SEC classifies many crypto assets as securities, bringing them under financial market regulations. This shift is critical for ensuring that VDAs do not exist in a legal grey area. By defining them as property, India gains the ability to tax, regulate, and seize crypto assets when necessary, preventing their misuse for illicit financial activities. However, it is crucial to recognise that despite the developments in the taxonomy and taxation of VDAs, there remains a lack of a clear and comprehensive regulatory framework.
The current legal approach operates in silos, addressing taxonomy and taxation but leaving significant gaps in areas such as investor protection, market regulation, enforcement mechanisms, and a lack of standard guidelines. The treatment of VDAs extends far beyond — it requires a cohesive policy framework that integrates financial regulations, consumer rights, and technological advancements to ensure a balanced and secure digital asset ecosystem.
Sanhita Chauriha is a Technology Lawyer. Views are personal
Published – March 04, 2025 08:30 am IST
