Income from transferring a virtual digital asset in India is taxed at a flat 30%, with only the cost of acquisition deductible, no set-off of losses against other income, and no carry-forward of losses to later years. A separate 1% TDS applies to the gross value of a transfer. Whether that same regime applies to derivative contracts on crypto is a different and genuinely unresolved question, because a derivative contract is not itself a virtual digital asset. This guide sets out what the framework covers, why settlement structure affects the argument, and, just as importantly, what none of it means.
The Problem: What the 30% Regime Feels Like on Spot
For an active spot trader, the VDA regime is felt on every round trip rather than once a year. Buy Bitcoin, sell it at a profit, and 30% of the gain is payable regardless of your other income or your overall position for the year. Trading costs, platform fees, research subscriptions, and interest are not deductible; only what you paid for the asset is.
The part that hurts most is the loss treatment. A ₹5,00,000 loss on one asset cannot be set against a ₹5,00,000 gain on another, so a trader who finished the year flat can still owe tax on the winning trades in full. Those losses also cannot be carried into next year. They simply expire. Add the 1% TDS deducted on gross transaction value, not on profit, and a high-frequency spot strategy can accumulate a meaningful drag before any tax on actual gains is calculated.
What the Framework Actually Covers
The 30% rate and the transfer trigger
The flat 30% rate was introduced by the Union Budget 2022 as Section 115BBH of the Income-tax Act 1961. Its trigger is specific: income arising from the transfer of a virtual digital asset. That wording matters more than the rate, because everything contested about derivatives turns on whether a given transaction is a transfer of a VDA at all.
The 1% TDS
The TDS obligation arrived alongside it as Section 194S, applying at 1% to the consideration paid for a VDA transfer. Thresholds apply: broadly ₹50,000 in a financial year for most individuals and ₹10,000 for specified persons. TDS is a collection mechanism, not a final tax, so anything deducted is creditable against your eventual liability and refundable if it exceeds it. It should appear in Form 26AS and in your Annual Information Statement, and it is worth reconciling both.
What changed on 1 April 2026
The Income-tax Act 2025 came into force on 1 April 2026, replacing the 1961 Act. For VDA holders the substance carried over unchanged: the same 30% rate, the same restriction to cost of acquisition, the same denial of set-off and carry-forward. What changed is the numbering, so references need updating. The TDS provision previously cited as Section 194S now sits at Section 393(1).
Two further changes matter more than the renumbering. First, the VDA definition was widened to name crypto-assets explicitly from 1 April 2026, closing gaps that earlier definitions arguably left open. Second, under Section 509(1), prescribed reporting entities including crypto platforms must now furnish crypto-asset transaction statements to the department. In practical terms, the tax authority sees your trading activity independently of what you report.
Why Settlement Structure Matters
A contract on an asset is not the asset
A crypto perpetual futures contract derives its value from an underlying asset without conveying ownership of it. Nobody takes delivery, and the position is closed out in cash against a price. That is the basis of the argument that a derivative trade is not a transfer of a virtual digital asset: the thing transferred is a contractual position, not the asset the VDA rules were written around. Derivative instruments have not been notified as VDAs in their own right.
Where INR settlement strengthens the argument
Settlement currency is where this becomes concrete. If a contract settles in another crypto asset, that settlement is itself a crypto-to-crypto transaction, which falls squarely inside the VDA definition, and the argument for different treatment largely collapses. If a contract is cash-settled in rupees, no virtual digital asset changes hands at settlement, which is precisely what leaves interpretive room.
It is worth being exact about what that does and does not achieve. INR settlement makes a cleaner factual record and a stronger argument. It does not create an exemption, and it does not decide the question.
The two positions, and where the authorities stand
Two readings are in circulation among practitioners. The conservative position treats crypto derivative gains as VDA income at 30%, on the view that the substance of the transaction is exposure to a virtual digital asset. The alternative position treats cash-settled contracts as speculative transactions, since delivery is never taken, making the income speculative business income taxed at the individual’s slab rate with expenses deductible.
The CBDT has not issued a circular resolving this. That means there is no position a trader can adopt with certainty, and the tax authority is not bound by whichever view a platform or an article favours. Traders who take the second position generally do so with documentation prepared in advance and a CA willing to defend the classification.
For context on how differently the two worlds are treated, our comparison of bitcoin futures vs nifty futures sets out the structural differences. Equity F&O losses can be carried forward for years, which is the benefit the VDA regime specifically removes.
The Same ₹1,00,000 Gain, Three Ways
Assume a ₹1,00,000 realised gain and no other crypto activity in the year. Figures include the 4% health and education cess and exclude surcharge, which applies at higher income levels. Slab brackets are used illustratively rather than as a statement of any individual’s rate.
| Spot VDA transfer | Derivatives, conservative view | Why | |
|---|---|---|---|
|
Basis |
Treated as transfer of a VDA |
Treated as a speculative transaction, not a VDA transfer |
Treated as a speculative transaction, not a VDA transfer
|
|
Headline rate |
30% flat |
30% flat |
The individual’s applicable slab rate |
|
Deductions |
Cost of acquisition only |
Cost of acquisition only |
Related business expenses generally allowed |
|
Loss set-off, same year |
Not allowed
|
Not allowed
|
Generally allowed against speculative gains |
|
Loss carry-forward |
Not allowed |
Not allowed |
Speculative losses generally 4 years, against speculative income |
|
1% TDS |
Applies on gross consideration |
Generally applied by the platform |
Argued not to apply, but platforms may still deduct |
|
Tax on ₹1,00,000 gain |
₹31,200 |
₹31,200 |
₹31,200 in the 30% bracket, ₹20,800 in the 20% bracket, ₹5,200 in the 5% bracket |
|
ITR form |
Usually ITR-2 |
Usually ITR-2 or ITR-3 |
ITR-3 |
The row worth reading twice is the tax on a ₹1,00,000 gain. For a trader whose other income already places them in the highest bracket, the alternative treatment produces broadly the same tax as the flat 30%. The headline rate is not where the difference lives. It lives in the two rows above it: whether expenses are deductible, and whether losses can be set off and carried forward. For anyone who trades at volume and has losing periods, those rows are worth considerably more than the rate.
One practical note for perpetual futures specifically: funding rate payments are a recurring cash flow in and out of the account, separate from trading profit and loss. Simple profit and loss summaries often do not present them clearly, so they are worth reconciling from platform statements before filing.
What This Does Not Mean
This section exists because the topic attracts overstatement, including from platforms with an interest in the answer. To be explicit:
- None of this makes crypto derivative trading tax-free. Every position discussed here results in tax on gains. There is no reading of Indian law under which derivative profits are untaxed.
- Slab rates are not automatically lower than 30%. For a trader in the top bracket they are broadly equivalent, and the practical advantages lie in expense deductibility and loss treatment rather than the rate.
- The conservative 30% treatment is still what many chartered accountants apply to crypto derivatives. Presenting the alternative as settled practice would misrepresent where the profession actually stands.
- Classification follows your facts, not your platform. Trading frequency, scale, intent, and record quality drive it. No exchange can determine your tax treatment for you, and any platform implying otherwise is overreaching.
- The unsettled position carries real audit risk. If the department disagrees with a classification, the exposure is additional tax plus interest plus penalty, which under the underreporting provisions starts at 50% of the tax involved and can reach 200% where misreporting is alleged.
- Exchange reporting is now live. From 1 April 2026, platforms furnish transaction statements to the department, so any strategy premised on low visibility is obsolete.
Structure Matters, and So Does Documentation
Two things are true at once. Settlement structure genuinely affects how a transaction is characterised, and INR-settled contracts sit on firmer ground than crypto-settled ones. And no structural feature converts a contested position into a settled one.
What that leaves is a practical checklist rather than a conclusion. Keep derivatives records separate from spot records, since the classification argument depends on the distinction being visible. Reconcile funding payments, fees, and TDS against platform statements rather than a single profit and loss figure. Establish your classification with a qualified chartered accountant before the filing deadline rather than during it, and match the ITR form to that classification, since ITR-3 applies where the income is treated as business income. If you take the less conservative position, document the reasoning at the time you file, not afterwards.
On any question specific to your situation, consult a qualified chartered accountant. This article describes a framework, and a framework is not advice about your circumstances.
NIYAM produces year-end statements and an ITR-ready tax report, and this article will be updated with direct links to that tooling once it is live. NIYAM Academy covers reporting and record-keeping for derivatives traders in more depth.
Frequently Asked Questions
How is crypto taxed in India in 2026?
Income from the transfer of a virtual digital asset is taxed at a flat 30%, with only the cost of acquisition deductible. Losses cannot be set off against other income or carried forward to later years, and a 1% TDS applies on the gross consideration for a transfer. The Income-tax Act 2025 came into force on 1 April 2026 and carries these rules forward with sections renumbered, so the TDS provision previously known as Section 194S now sits at Section 393(1).
Are crypto futures taxed at 30% or at slab rates in India?
This is unsettled. The conservative position, which many chartered accountants apply, treats crypto derivative gains as VDA income at the flat 30% rate. An alternative position treats cash-settled contracts as speculative business income taxed at the individual’s slab rate, on the basis that a derivative contract is not itself a virtual digital asset. The CBDT has not issued a circular resolving this, so the treatment depends on the position your CA takes on your specific facts.
Does the 1% TDS apply to crypto derivatives?
In practice, platforms commonly deduct it. Under the argument that a derivative contract is not a transfer of a VDA, the TDS provision would not apply, but that argument is not settled and platforms generally deduct conservatively. TDS is a collection mechanism rather than a final tax, so any amount deducted is creditable against your final liability and refundable if it exceeds it. Verify deductions in Form 26AS and your Annual Information Statement.
Does settling in INR instead of crypto change the tax position?
It changes the strength of the argument rather than the rule. When a contract settles in another crypto asset, that settlement is itself a crypto-to-crypto transaction and falls squarely within the VDA definition. When a contract is cash-settled in rupees, no virtual digital asset changes hands at settlement, which is what leaves interpretive room. It does not create an exemption.
Can crypto derivative losses be set off against gains?
Under the VDA treatment, no. Losses from one VDA transaction cannot be set off against gains from another, and cannot be carried forward. Under the speculative business income treatment, losses can generally be set off against speculative gains and carried forward for four years. This difference in loss treatment is usually more financially significant than the headline rate.
Do Indian crypto exchanges report transactions to the Income Tax Department?
Yes. From 1 April 2026, prescribed reporting entities including crypto platforms must furnish crypto-asset transaction statements under Section 509(1) of the Income-tax Act 2025. The department can match those statements against your return, so a mismatch can prompt a notice. Underreporting attracts a penalty of 50% of the tax on the underreported income, rising to 200% where the reporting is treated as misreporting, plus interest.
Which ITR form should a crypto derivatives trader file?
If the income is treated as business income, whether speculative or not, ITR-3 is the applicable form. ITR-2 is for individuals with capital gains and no business income, which may suffice for occasional spot activity. Filing the wrong form is a common trigger for notices, so confirm the form alongside the classification with your CA.