Crypto Asset Disclosure / Transaction Declaration (India)

A Crypto Asset Disclosure / Transaction Declaration in India states the declarant's position on the matter it addresses and stands as a formal undertaking of its truth.

Section 2(47A) of the Income Tax Act 1961 defines a Virtual Digital Asset as any information, code, number, or token (other than Indian currency or foreign currency) generated through cryptographic means or otherwise, providing a digital representation of value exchanged with or without consideration, including cryptocurrencies such as Bitcoin, Ethereum, and Ripple; non-fungible tokens (NFTs); and any other digital asset notified by the Central Government. The Central Government has notified specific assets as VDAs through gazette notifications.

Section 115BBH imposes a flat tax rate of 30% on income from transfer of VDAs, irrespective of the holding period or the nature of the asset. No deduction is permitted for any expense except the cost of acquisition. Losses from VDA transactions cannot be set off against any other income — salary, business income, capital gains from other assets, or income from other sources — and cannot be carried forward to subsequent assessment years. These restrictions make VDA taxation distinctly harsh compared to the treatment of other capital assets under the Income Tax Act.

Section 194S mandates TDS at 1% on consideration paid for transfer of VDAs where the aggregate consideration exceeds ₹50,000 in a financial year (₹10,000 for certain specified persons). For transactions on regulated cryptocurrency exchanges (Virtual Asset Service Providers or VASPs such as CoinDCX, WazirX, Zebpay, and Coinswitch Kuber), the exchange deducts TDS automatically. For peer-to-peer (P2P) transactions, the buyer bears the obligation to deduct and deposit TDS using Form 26QE under Section 194S.

The Prevention of Money Laundering Act 2002 (PMLA) was amended in March 2023 to bring cryptocurrency exchanges and Virtual Asset Service Providers (VASPs) under its scope as 'reporting entities', requiring Know Your Customer (KYC) verification, suspicious transaction reporting to the Financial Intelligence Unit — India (FIU-IND), and maintenance of transaction records for five years. This makes holding VDAs on Indian exchanges a fully documented, regulated, and auditable financial activity.

Income Tax Returns must disclose VDA transactions in Schedule VDA, introduced in ITR forms from Assessment Year 2023-24. Failure to disclose VDA income attracts penalties under Section 270A and potential prosecution under Section 276C of the Income Tax Act 1961.

A Crypto Asset Disclosure and Transaction Declaration is required whenever an Indian taxpayer engages in transactions involving Virtual Digital Assets and needs to compute, document, and report the associated tax liability under Section 115BBH of the Income Tax Act 1961.

Sale or exchange of cryptocurrency triggers a disclosure obligation. Any transfer of Bitcoin, Ethereum, or other cryptocurrency for INR, USD, or any other currency generates income taxable at 30% under Section 115BBH, regardless of whether the transaction was executed on an Indian exchange, a foreign platform, or in a peer-to-peer arrangement. The declaration captures the acquisition cost, transfer consideration, and net taxable gain for each transaction.

Crypto-to-crypto exchanges where one cryptocurrency is swapped for another (e.g., Bitcoin for Ethereum) also constitute a taxable transfer under Section 115BBH — the fair market value of the cryptocurrency received is the consideration for the transfer. Each such swap requires disclosure of the market value used and the resulting gain or loss.

NFT sales trigger disclosure as NFTs are explicitly included in the definition of VDA under Section 2(47A). Artists, collectors, and investors who sell NFTs must compute gain as the difference between the sale price and the mint/acquisition cost, taxable at 30%.

TDS compliance documentation is required for P2P transactions. When an individual buys cryptocurrency directly from another individual, they must deduct TDS at 1% under Section 194S and file Form 26QE within 30 days of the end of the month of payment. The disclosure declaration provides the underlying transaction record for TDS computation and filing.

Foreign VDA holdings on overseas exchanges may constitute foreign assets requiring disclosure in Schedule FA of the Income Tax Return under the Foreign Exchange Management Act 1999 and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015. The declaration documents these holdings for Schedule FA purposes.

Annual Income Tax Return filing requires VDA disclosures in Schedule VDA for all Assessment Years from AY 2023-24. Even where there is no profit or where there are only losses, the disclosure is mandatory — omission invites scrutiny notices under Section 143(2) of the Income Tax Act 1961.

A Crypto Asset Disclosure and Transaction Declaration under the Finance Act 2022 framework must thoroughly document all VDA transactions to support accurate Income Tax Return filing and TDS compliance under Section 194S.

Taxpayer identification must include the full name, PAN (Permanent Account Number — mandatory for VDA transactions and TDS under Section 194S), Aadhaar number, residential status (Resident or Non-Resident Indian), and the applicable Assessment Year for which the disclosure is prepared.

VDA transaction register must record each transaction separately: the date of acquisition (DD/MM/YYYY); the type of VDA (Bitcoin, Ethereum, NFT, etc.); the mode of acquisition (purchase, gift, mining, airdrop, staking reward); the cost of acquisition in INR; the date of transfer (DD/MM/YYYY); the name of the exchange or counterparty; the transfer consideration in INR (or the fair market value in INR if the transfer was in foreign currency or crypto-to-crypto); the computation of gain (consideration minus cost of acquisition); and the 30% tax computed under Section 115BBH.

Cost of acquisition determination varies by acquisition mode and must be documented. For purchased VDAs: the INR equivalent of the purchase price on the acquisition date. For VDAs received as gifts from relatives exempt under Section 56(2)(x): the donor's cost of acquisition becomes the recipient's cost. For mined VDAs: the fair market value on the date of receipt (which is itself taxable as income from other sources at receipt). For staking rewards and airdrops: the fair market value on the date of receipt is both taxable on receipt and forms the cost of acquisition for any subsequent transfer.

TDS deduction and deposit record must document each instance where TDS under Section 194S was applicable: the transaction date; the counterparty's PAN; the VDA transfer consideration; the TDS amount (1%); the due date for deposit; Form 26QE challan number (for P2P transactions by individuals); or the exchange's TDS certificate number for exchange-executed transactions. TDS certificates in Form 16A received from exchanges must be attached.

Exchange-wise summary aggregates all transactions on each platform during the financial year — FIFO (First In, First Out) or weighted average cost method must be applied consistently across transactions on the same exchange. FIFO is the safer approach for VDA cost computation as it avoids selective matching.

Income Tax Return mapping must identify the Schedule VDA columns in the applicable ITR form (ITR-2 for capital gains; ITR-3 for business income from VDA trading) and confirm that each transaction in the declaration corresponds to an entry in Schedule VDA. The total VDA income computed in the declaration must match the Schedule VDA total in the ITR.

Foreign exchange conversion for VDA transactions denominated in USD or other currencies must apply the RBI reference rate on the transaction date, with the conversion rate and source documented for each international transaction.

Advance tax computation must confirm whether the estimated annual VDA tax liability exceeds ₹10,000, triggering advance tax payment obligations under Section 208 of the Income Tax Act 1961 in four instalments on 15 June, 15 September, 15 December, and 15 March of each financial year. The forms-legal.com Crypto Asset Disclosure / Transaction Declaration (India) template covers the mandatory elements under Negotiable Instruments Act, 1881.