Section 115BBH taxes all income from transferring Virtual Digital Assets (crypto) at a flat 30% rate, with no deductions except cost of acquisition, and zero ability to set off losses against any other income. Introduced by the Finance Act 2022 and effective from April 1, 2022, it applies to every Indian crypto trader regardless of income level or holding period.
- Rate: 30% flat + 4% Health & Education Cess on every profitable trade
- Only deduction: Cost of acquisition (your buy price including the buy-side fee) — selling fees, gas fees, and other expenses are not deductible
- No loss set-off: Crypto losses cannot be set off against crypto profits or any other income — not even carried forward
- Surcharge cap: Maximum 15% surcharge on VDA income even for incomes above ₹2 crore
- Covers: All cryptocurrencies, NFTs, and any government-notified digital assets
Here is a detailed breakdown of what Section 115BBH says, what it means for your wallet, and worked examples to show the full tax calculation.
What is Section 115BBH?
Section 115BBH was introduced by the Finance Act, 2022. It creates a special tax regime for income from "Virtual Digital Assets" — which is the legal term the government uses for cryptocurrencies, NFTs, and similar tokens.
The core rule is simple: any income from transferring a VDA is taxed at a flat 30%. It doesn't matter whether your total income is ₹5 lakh or ₹5 crore — the rate stays at 30%. No slabs, no exemptions, no negotiation.
What Exactly is a "Virtual Digital Asset" (VDA)?
The definition under Section 2(47A) is deliberately broad. A VDA includes:
- Any information, code, number, or token generated through cryptographic means (basically all cryptocurrencies — Bitcoin, Ethereum, Solana, etc.)
- Non-fungible tokens (NFTs)
- Any other digital asset that the government may notify in the future
The definition specifically excludes gift cards and vouchers issued by the RBI or any other recognized entity. But everything else in the crypto world? It's a VDA.
The "No Deductions" Rule — And Why It Hurts
Here's where 115BBH gets harsh. Under Section 115BBH(2), the only deduction you can claim against your sale proceeds is the cost of acquisition. That's it.
Let me spell out what you cannot deduct:
- Trading fees charged by the exchange
- Network/gas fees for blockchain transactions
- Any improvement cost to the asset
- Interest on money borrowed to buy crypto
- Advisory or platform subscription fees
This is dramatically different from how other assets are taxed. If you sell property, you can claim improvement costs, indexation, and brokerage. With stocks, you get the benefit of STT credit and can deduct brokerage. With crypto? Just the purchase price. Nothing else.
The No Loss Set-Off Rule — The Real Killer
Section 115BBH(2)(a) contains what many traders consider the most unfair rule in Indian tax law:
No loss from the transfer of a VDA can be set off against any income — not even income from another VDA.
Let me show you why this is devastating with a real scenario.
Say you made these trades in FY 2024-25:
- Sold Bitcoin: Bought for ₹5,00,000, sold for ₹8,00,000 — Profit: ₹3,00,000
- Sold LUNA: Bought for ₹2,00,000, sold for ₹20,000 — Loss: ₹1,80,000
- Sold Ethereum: Bought for ₹3,00,000, sold for ₹2,50,000 — Loss: ₹50,000
Your net position across all trades: ₹3,00,000 - ₹1,80,000 - ₹50,000 = ₹70,000 profit.
But under 115BBH, your taxable income is ₹3,00,000 — the full Bitcoin profit. Those losses on LUNA and Ethereum? You can't use them. Not this year, not next year, not ever. They can't be carried forward either.
And it gets worse — you can't even set off crypto losses against your salary, rental income, or any other income. The losses simply vanish from a tax perspective.
Full Tax Computation: A Worked Example
Let's do a complete calculation. Priya is a software engineer earning ₹12,00,000 annual salary. She also made the following crypto trades:
- Sold SOL: Bought at ₹40,000, sold at ₹1,10,000 — Profit: ₹70,000
- Sold DOGE: Bought at ₹15,000, sold at ₹8,000 — Loss: ₹7,000 (not deductible)
Step 1 — Base tax on VDA income:
Taxable VDA income = ₹70,000 (only profits count)
Tax at 30% = ₹21,000
Step 2 — Check surcharge:
Total income = ₹12,00,000 (salary) + ₹70,000 (crypto) = ₹12,70,000
Since total income is below ₹50,00,000, no surcharge applies to the VDA portion.
Step 3 — Calculate cess:
Cess at 4% = 4% of ₹21,000 = ₹840
Step 4 — Total crypto tax:
₹21,000 + ₹840 = ₹21,840
This is separate from Priya's salary tax. Her employer deducts TDS on ₹12,00,000 under the normal slab rates. The ₹21,840 is additional tax she owes on crypto gains.
Surcharge Thresholds for Crypto Income
Surcharge kicks in based on your total income (all sources combined, including crypto). But for VDA income, the surcharge rate is capped at 15%, regardless of how high your income goes.
Here's when it applies:
- Total income ₹50 lakh to ₹1 crore: 10% surcharge on VDA tax
- Total income ₹1 crore to ₹2 crore: 15% surcharge on VDA tax
- Total income above ₹2 crore: Still 15% surcharge (capped for VDA)
The surcharge is calculated on the base tax amount (the 30%), not on the tax plus cess. Then cess is applied on the total of base tax plus surcharge. So the correct order is: Tax → Surcharge → Cess.
At the highest surcharge bracket, your effective crypto tax rate becomes: 30% + 4.5% (surcharge) = 34.5%, then 4% cess on that = approximately 35.88%.
115BBH vs Regular Capital Gains — A Quick Comparison
- Stocks (LTCG): 12.5% after ₹1.25 lakh exemption. Losses can be carried forward 8 years. Crypto? 30% flat, no exemption, no carry forward.
- Property: 20% with indexation benefit (or 12.5% without indexation from FY 2024-25). You can deduct improvement costs and brokerage. Crypto? Just cost of acquisition.
- Gold/Debt Funds: Taxed at slab rates (short-term) or 20% with indexation (long-term). Crypto? Always 30%, no holding period benefit.
There's no long-term vs short-term distinction for crypto. Whether you held for one day or five years, the rate is the same 30%.
What About Crypto Received as Income?
If someone pays you in crypto for services, or you receive crypto from an airdrop or staking reward, there are two tax events:
- When received: The fair market value on the date of receipt is taxable as "Income from Other Sources" (at your slab rate)
- When sold: The difference between selling price and the fair market value on the date you received it is taxable at 30% under 115BBH
So yes, you could end up paying tax twice — once when you get the crypto and again when you sell it. The silver lining is that the FMV at the time of receipt becomes your cost of acquisition for the 115BBH calculation.
The Bottom Line
Section 115BBH is one of the strictest crypto tax regimes in the world. The flat 30% rate with no loss offset means you pay tax on every winning trade while absorbing every losing trade on your own. There's no way around it — the law is clear and the tax department has the data from exchanges to enforce it.
The best thing you can do is keep accurate records, compute your tax correctly, and file on time. And if you have hundreds of trades across multiple exchanges, use a tool like CryptoITR to automate the FIFO calculations instead of trying to do it in a spreadsheet. Trust me, your sanity is worth it.