Section 2(111) of the Income-tax Act, 2025 — What is a "Virtual Digital Asset" (VDA / Crypto)?

In plain language

What Section 2(111) actually says

Section 2(111) of the Income-tax Act, 2025 is the definition clause that tells you what counts as a "virtual digital asset" (VDA). It does not itself impose any tax — it simply draws the boundary of what the crypto-tax rules apply to. Once something falls inside this definition, the special VDA taxation machinery (flat 30% tax on gains and 1% TDS on transfers) is triggered.

• Limb (a) — crypto-assets: any information, code, number or token — not being Indian currency or foreign currency — generated through cryptographic means, that provides a digital representation of value and can be transferred, stored or traded electronically. This squarely covers Bitcoin, Ethereum, stablecoins, altcoins and most tokens.
• Limb (b) — NFTs: a non-fungible token (NFT) or any token of a similar nature, by whatever name called.
• Limb (c) — future assets: any other digital asset that the Central Government may notify. This is a "future-proofing" power so Web3, metaverse and tokenised assets can be brought in without amending the Act.

Why the definition matters (who it applies to)

The definition is deliberately wide and applies to every taxpayer — salaried individuals, traders, investors, HUFs, firms and companies — who holds, sells, swaps, gifts or receives a VDA. If your asset is a VDA, you cannot argue that your crypto gains are ordinary capital gains taxed at slab rates or 12.5%. They are pushed into the special 30% regime.

• What is included: cryptocurrencies, NFTs, crypto tokens, and any digital asset the Government notifies.
• What is excluded: the Government has power to exclude specified assets by notification. Traditionally, gift cards, vouchers, mileage/reward points, and subscriptions to websites/platforms have been kept outside the VDA net. Indian rupee and foreign currency are excluded by the words of the section itself.

How Section 2(111) interacts with the charging and TDS provisions

The definition is the gateway to three connected rules that continue under the 2025 Act (carried forward from Sections 115BBH and 194S of the Income-tax Act, 1961):

• Flat 30% tax on gains: profit on transfer of a VDA is taxed at a flat 30% plus surcharge and 4% cess, regardless of your income slab and regardless of holding period.
• Only cost of acquisition is deductible: you can subtract only what you paid to buy the coin. No exchange fees, no gas fees, no brokerage, no interest can be claimed.
• No set-off, no carry-forward of losses: a loss on one VDA cannot be adjusted against gains on another VDA, cannot be set off against salary/business/other income, and cannot be carried to future years.
• 1% TDS on transfer: the buyer/exchange deducts 1% TDS on the sale consideration once the annual threshold is crossed (₹50,000 for specified persons, ₹10,000 for others).
• Gifts: a VDA received as a gift is taxable in the recipient's hands under "Income from other sources" if the value exceeds ₹50,000, unless received from a relative or on other exempt occasions.

Practical implications for taxpayers

• Crypto-to-crypto swaps are taxable. Swapping ETH for USDT is a "transfer" — you owe 30% on any gain even though no rupee hit your bank.
• You may pay tax even at an overall loss. Because losses on one coin cannot offset gains on another, you can be taxed on your winners while your losers give you no relief.
• Report in Schedule VDA of your ITR and reconcile the 1% TDS in Form 26AS/AIS. The 2025 Act also brings a mandatory reporting framework for crypto exchanges/reporting entities, with penalties for non-reporting or inaccurate reporting.