Taxation of Virtual Digital Assets under the New Income Tax Bill 2025

The digital economy in India is growing rapidly, and virtual digital assets such as cryptocurrencies, NFTs, and other digital tokens have become popular among investors and traders. Recognizing this, the government has broadened the tax framework to bring greater clarity and compliance regarding the taxation of virtual digital assets through the New Income Tax Bill 2025.

What Are Virtual Digital Assets?

Virtual digital assets (VDAs) are digital representations of value that can be digitally traded or transferred and include cryptocurrencies like Bitcoin, Ethereum, NFTs (non-fungible tokens), and other tokenized assets. These assets operate on blockchain technology and are distinct from traditional financial instruments.

Taxation Framework under New Income Tax Bill 2025

The New Income Tax Bill, which is set to be implemented from April 1, 2026, aims to simplify and update tax provisions, including those related to VDAs. Key highlights include:

• Broadened Scope: The Bill explicitly incorporates VDAs under the definition of “capital assets,” ensuring that gains from their sale or transfer are taxable under capital gains provisions.
• Tax at Source (TDS) and Withholding Provisions: Specific provisions may be introduced to mandate TDS on transactions involving virtual digital assets, aiding in better tracking and compliance.
• Classification of Income: Income from VDAs will be classified based on the nature of transaction—capital gains from sale/exchange or business income if trading is done as a business activity.
• Valuation and Record-Keeping: The Act requires taxpayers to maintain clear records of purchase and sale transactions, including cost basis and fair market values, for accurate computation of taxable gains.
• Anti-Avoidance Measures: The Bill introduces measures to prevent tax evasion through the use of VDAs, including provisions to classify certain transfers as deemed transactions or to tax income under undisclosed income rules.

Implications for Taxpayers

• Taxpayers dealing in VDAs need to ensure correct disclosure of all transactions in their income tax returns.
• Gains should be calculated carefully, distinguishing between short-term and long-term capital gains depending on the holding period.
• Those operating VDAs as a business must comply with applicable business income tax provisions and maintain detailed transaction logs.
• The Bill promotes transparency, making it imperative for taxpayers to adopt robust accounting practices for their virtual asset dealings.

Preparing for Compliance

• Start maintaining detailed transaction statements for all virtual asset purchases, sales, and exchanges.
• Consult tax professionals to understand the classification of income from VDAs in line with new regulations.
• Use government portals and authorized platforms for accurate reporting and possible TDS compliance.
• Stay updated on any notifications or guidelines issued by the Income Tax Department related to VDAs.

The New Income Tax Bill 2025 marks a significant step towards integrating virtual digital assets into the formal tax system, promoting transparency, compliance, and investor confidence in the digital asset space. By understanding and adhering to these provisions, taxpayers can ensure smooth compliance and avoid penalties.