The Indian government’s proposal to tax and regulate Virtual Digital Assets (VDAs) under the Income Tax Bill, 2025 is a significant step towards recognising and managing digital assets like cryptocurrencies and NFTs in a streamlined manner. For the first time, VDAs in India may be classified as property and capital assets, bringing them under the scope of capital gains taxation. This simply means that profits from selling or transferring digital assets may be taxed just like real estate, stocks, or bonds. The bill enforces a 30 per cent tax on income from VDA transfers, with no deductions allowed except for the cost of acquisition. This means that expenses like mining costs, transaction fees, and platform commissions cannot be deducted. Additionally, a 1 per cent TDS (Tax Deducted at Source) applies to all VDA transactions, extending even for peer-to-peer (P2P) transfers. These measures are aimed to make sure that all crypto transactions are tracked, eventually preventing tax evasion.
Following the enactment of the new legislation, the failure to report VDA holdings in tax filings can lead to serious consequences. The bill classifies unreported digital assets as undisclosed income, which could attract a 60 per cent tax along with a 50 per cent penalty. Authorities will also have the power to seize VDAs during tax investigations, just like they do with cash or property. Reporting requirements for crypto exchanges, wallet providers, and traders have also been tightened, making compliance mandatory. The inclusion of VDAs in Annual Information Statements (AIS) is aimed to ensure that every crypto transaction is automatically recorded in financial records. The government has also brought VDAs under the block assessment scheme, meaning that if someone is found to have undisclosed crypto assets, the entire block period of six years will be assessed together. This goes on to imply that until this assessment is complete, no further reassessment will take place. This move will, in the long run, strengthen tax enforcement and streamline investigations into hidden assets.
While these proposed measures prima facie seem to align India’s tax framework with effective global practices, they focus mainly on taxation and compliance provisions, leaving much more to be desired. There is still no clear policy on investor protection, market regulations, or enforcement beyond taxation. Currently, countries like the United States classify many crypto assets as securities. They basically bring cryptocurrencies under financial market regulations. In contrast to this, India’s approach still lacks a structured framework to govern digital asset markets beyond tax laws. This limitation has to be broken by the earliest in favour of an efficient regulatory framework for VDAs.
Recognising VDAs as property and taxing them accordingly is indeed a necessary step but, at the same time, it also raises concerns about over-regulation. Global precedents show that high tax rates and strict compliance rules could push investors and businesses towards countries with more favourable regulations. To fully integrate digital assets into the economy, India needs a balanced policy—one that combines taxation with clear rules on security, investor protection, and market stability. Until then, the digital asset ecosystem will remain in a state of uncertainty, operating under tax laws without a broader regulatory framework. The Indian government’s first step is appreciated, but there are miles to cover, without stifling the nascent sector.