India Budget 2025-26: What Every Crypto Holder Must Know About the New VDA Rules
India's Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on 1 February 2025, contains a cluster of changes that will directly affect anyone holding or trading crypto assets in the country. The headline move for the crypto community is a broadened definition of Virtual Digital Assets and a new mandatory reporting obligation that kicks in from 1 April 2026. If you rely on a crypto tax calculator or plan to file your own crypto tax return, these rules change what data you need to collect and when your exchange will be sharing it with the Income Tax Department.
The VDA Definition Has Been Expanded
The existing legal category of Virtual Digital Asset has been widened to capture any crypto asset defined as a digital representation of value that relies on a cryptographically secured distributed ledger, or a similar technology, to validate and secure transactions.
Why the wider definition matters for your tax position
The practical effect is that tokens, coins, or protocols that might have previously sat in a grey zone are now pulled squarely into the VDA tax framework. That means the flat 30 percent tax rate on gains, the one percent TDS on transfers above the applicable threshold, and the prohibition on setting off losses against other income all apply. If you're wondering whether a particular asset you hold counts, the new wording is deliberately broad: if it runs on a distributed ledger and represents value, it is almost certainly a VDA under Indian law from April 2026 onwards.
Reporting by prescribed entities
Transactions in crypto assets must now be reported to the Income Tax authorities by a prescribed Reporting Entity, effective 1 April 2026. The government has not yet published the full list of entities that will be designated, but the direction is clear: exchanges and intermediaries operating in India will be required to file transaction data in much the same way that banks report interest and financial institutions report securities transactions. This is a structural shift. Previously, the burden of disclosure rested almost entirely on the individual taxpayer. From April 2026, the tax authority will receive a parallel data feed from the platform side.
Income Tax Slabs: The New Regime Gets More Generous
While the crypto-specific rules are the most consequential change for digital asset holders, the broader personal income tax changes affect the net position for many filers. Under the default new tax regime, the income threshold that qualifies for a full rebate has been raised from INR 700,000 to INR 1,200,000. Separately, the budget proposes enhancing the rebate threshold further to INR 1,200,000 for resident individuals (excluding income taxable at special rates such as capital gains).
What stays the same
Under the optional old tax regime, income tax slabs, rates, surcharge, and cess are unchanged. If you use the old regime, none of the slab revisions apply to you. The 30 percent flat tax on VDA gains, however, applies regardless of which regime you use: it is a special rate that sits outside the normal slab structure entirely.
Capital gains and crypto: no offset relief
The budget does not introduce any relaxation of the existing rule that prohibits setting off a loss on one VDA against a gain on another, or against any other head of income. Indian crypto holders still cannot use a Bitcoin loss to offset an altcoin gain, and they cannot carry those losses forward in any meaningful way. That restriction remains intact.
TDS and TCS Changes That Affect Crypto Holders
The budget proposes rationalising certain Tax Deduction at Source rates and raising thresholds for TDS applicability across several categories. The one to watch for people moving money offshore is the Tax Collected at Source rule under the Liberalised Remittance Scheme.
LRS remittance threshold raised
The TCS threshold for outward remittances under the Liberalised Remittance Scheme is proposed to increase from INR 700,000 to INR 1,000,000. This matters for crypto holders who use overseas platforms or custody services: sending funds abroad for crypto-related purposes counts as an LRS remittance, and TCS collected is creditable against your final tax liability but ties up cash in the interim.
Education remittances get TCS relief
Remittances made specifically for education, where the funds are sourced from a loan from a specified financial institution, will attract no TCS at all. This is a narrow carve-out but illustrates the government's intent to calibrate collection points rather than remove them wholesale.
ULIPs: Now Treated as Capital Assets
A change that will catch some higher-income investors off guard: all Unit Linked Insurance Plans for which a tax exemption is not available will be treated as capital assets, on a par with equity-oriented funds. Any gain on the redemption of such a ULIP is now taxable as a capital gain rather than as exempt insurance proceeds. This isn't a crypto rule, but many investors who moved between ULIPs and crypto for tax efficiency reasons will need to reassess.
Updated Returns Window Extended to 48 Months
One of the more practically useful changes for crypto taxpayers is the proposed extension of the window to file an updated tax return. The existing limit is 24 months from the end of the relevant Assessment Year. The budget proposes extending this to 48 months. That means if you failed to report VDA gains from Assessment Year 2021-22 onwards, you now have a longer window to correct the record.
The additional tax cost of filing late
Filing an updated return isn't free. If you file after the 24-month mark but within 36 months of the end of the Assessment Year, you pay an additional tax of 60 percent on the aggregate of incremental tax and interest. File after 36 months but within the new 48-month limit and that surcharge rises to 70 percent. These are steep penalties, but they may still be preferable to facing a formal assessment or prosecution if unreported crypto gains come to light once exchange reporting begins in April 2026. The arithmetic is worth running before that deadline arrives.
Other Measures With Indirect Relevance
Several other budget proposals don't target crypto directly but affect the financial planning context for digital asset holders.
NPS Vatsalya and partial withdrawal rules
The existing deduction limit for contributions to the National Pension Scheme is proposed to be extended to cover contributions made by a parent or guardian to an NPS Vatsalya account for a minor child. Partial withdrawals of up to 25 percent for specified reasons from the minor's account will not be taxable in the guardian's hands. For families with crypto holdings, this creates one more legitimate tax-sheltered savings vehicle to consider alongside VDA exposure.
Life insurance from IFSC intermediaries
Proceeds, including bonus allocations, from life insurance policies issued by intermediary offices located in an International Financial Services Centre will be fully exempt, with no conditions attached. The IFSC in GIFT City is increasingly active in digital asset regulation, so this exemption may become relevant as IFSC-based crypto structures develop.
NSS withdrawals made tax-free
Any amount withdrawn from the National Savings Scheme on or after 29 August 2024 will not be taxable. This is a retrospective relief measure that benefits older savers rather than active crypto traders, but it frees up liquidity that some investors may redirect into digital assets.
What You Should Do Now
The exchange reporting obligation starting 1 April 2026 is the real game-changer. Once platforms are filing transaction data directly with the Income Tax Department, the department will have the raw material to cross-check returns automatically. If your declared gains don't match the exchange data, you can expect a notice. Here's what to act on before that date:
Reconstruct your full transaction history
Pull your complete trade history from every exchange and wallet you have used since you started investing. Many Indian investors used offshore platforms during periods when domestic options were limited. Those transactions are taxable even if the platform isn't yet a prescribed Reporting Entity, and they still need to appear on your return. A reliable crypto tax calculator that can ingest data from multiple sources is the most practical way to consolidate this history without errors.
Consider whether an updated return is needed
If you know you underreported VDA gains in any Assessment Year from 2021-22 onwards, the extended 48-month window gives you a structured route to correct that. The additional tax cost is high, but the window closes eventually, and voluntary disclosure before exchange reporting begins is a stronger position than being caught by an automated match. Consult a qualified tax professional before filing, particularly if the amounts are material.
Review your withholding and advance tax payments
The new slab rates and enhanced rebate thresholds under the new regime may change your advance tax liability for FY 2025-26. If your employer runs an international assignment structure for you, payroll administrators will need to update withholding calculations once these proposals are enacted. These changes are proposed to apply from 1 April 2025 or such dates as specified in the relevant provisions.
For a deeper look at whether crypto is legal in India and how it is taxed under the existing framework, and to understand how a crypto tax calculator keeps your filing accurate when data from multiple platforms needs to be reconciled, those resources cover the foundations you need before tackling the Budget changes.
Frequently Asked Questions
Does the expanded VDA definition change how much tax I pay on crypto gains?
The rate itself stays at 30 percent, plus applicable surcharge and cess. What changes is the scope: assets that may have previously been ambiguous are now clearly within the VDA framework. If you hold a token that runs on a distributed ledger and represents value, it is almost certainly captured from April 2026. You should categorise all holdings against the new definition and factor any uncategorised assets into your crypto tax calculation going forward.
When does exchange reporting to the Income Tax Department start, and what does it mean for me?
The mandatory reporting obligation for prescribed Reporting Entities takes effect from 1 April 2026. From that date, exchanges and other designated intermediaries will file your transaction data directly with the tax authority. The department will then be able to compare that data against your filed return. Any discrepancy between what the exchange reports and what you declare is likely to trigger a notice or scrutiny assessment. Keeping your own records and filing accurate returns before this date is the clearest way to avoid complications.
I missed reporting crypto gains in an earlier year. What are my options?
The Budget 2025-26 proposes extending the updated return window from 24 months to 48 months from the end of the relevant Assessment Year, covering returns from AY 2021-22 onwards. You can file an updated return, but you will pay an additional tax of 60 percent on the incremental tax and interest if you file after the 24-month mark, rising to 70 percent after the 36-month mark. Despite the cost, voluntary disclosure before the April 2026 exchange reporting deadline is generally a stronger position than waiting for an automated mismatch to surface. Speak to a qualified Indian tax adviser before proceeding.
Does the new rebate threshold of INR 12 lakh apply to my crypto gains?
No. The proposed enhancement of the income threshold for the rebate under the new tax regime explicitly excludes income taxable at special rates, and crypto gains taxed at 30 percent fall into that excluded category. The rebate applies only to income taxed at the normal slab rates. Your VDA gains are calculated and taxed separately, and they do not benefit from the higher rebate threshold.
How does the raised LRS threshold affect crypto holders using overseas platforms?
The proposed increase of the TCS threshold for outward remittances under the Liberalised Remittance Scheme to INR 1,000,000 means you won't have TCS collected on smaller transfers abroad. If you fund an overseas crypto platform via LRS and the annual total stays below INR 1,000,000, no TCS applies. Above that level, TCS is still collected and is creditable against your final tax liability, but it ties up cash until you file and claim the credit. Tracking these remittances as part of your overall crypto tax record is good practice.
Source: KPMG GMS Flash Alert 2025-035