Virtual Digital Assets, Cryptocurrency – Important Changes Income Tax Bill 2025

The new age virtual digital assets like cryptocurrency, NFTs have gained popularity in the last few years worldwide and are now coming under the regulations and structural frameworks in several countries. Countries like United States of America, India and European Union countries have brought these virtual digital assets under the purview of taxation. The new Income Tax Bill 2025 introduced by the Finance Minister Nirmala Sitharaman in Parliament in February, 2025 which will be replacing the existing 6 decades old Income Tax Act, 1961 holistically covers the concept of virtual digital assets and has several clauses covering the tax implications of these assets.

Need for Inclusion of Virtual digital Assets in the bill

The spirit of the new Income Tax Bill of 2025 is to remove the redundant laws and to make the direct taxation law more contemporary. Moreover, there was a growing need for inclusion of virtual digital assets like cryptocurrency and NFTs under the pruview of taxation on account of the following reasons:-

• For generation of revenue since the volume of transaction is these virtual digital assets has been increasing rapidly,
• For prevention of tax evasion, illegal transactions and money laundering that was being facilitated by these VDAs,
• For better regulation of this sector to enhance transparency in transactions involving VDAs.

Definition of Virtual Digital Assets

In the new Income Tax Bill, 2025, the term “virtual digital assets” has been defined under Clause 2(111) as –

“(a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, called by any name, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically

(b) a non-fungible token or any other token of similar nature, by whatever name called;

(c) any other digital asset, as the Central Government may, by notification, specify,

(d) any crypto-asset being a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions, whether or not such asset is included in sub-clause (a) or (b) or (c).”

Therefore, the definition of virtual digital assets in the bill is very comprehensive and covers all kinds of cyptocurrency, crypto-assets and NFTs. The term “virtual digital assets” defined above has been used several times in the 622 pages bill as such without any changes in the term in any of these clauses.

Taxation under Income from Other Sources

Under Clause 92(5)(f) of the new Income Tax Bill, 2025, the inclusions in the term “property” have been listed as – “the following capital asset of the assesse:— (i) immovable property being land or building or both; (ii) shares and securities; (iii) jewellery; (iv) archaeological collections; (v) drawings; (vi) paintings; (vii) sculptures; (viii) any work of art; (ix) bullion; or (x) virtual digital asset.” Therefore, the taxation implications on property being covered under the head “Income from other sources” will also be applicable as it is on the virtual digital assets as well.

VDAs covered under the taxation on Unexplained Assets

Clause 104 of the Income Tax Bill, 2025, covers the aspect of assets owned by the assessee that have not been disclosed anywhere by the assessee and are later discovered by the Assessing Officer i.e. Unexplained assets. In sub-clause 2, the inclusions in the term “asset” have been listed as money, bullion, jewellery, virtual digital asset or any other valuable article. Therefore, the value of such virtual digital asset, or such excess amount, as the case may be, shall be deemed to be the income of the assessee of the tax year in which such asset has been found to be owned by, or belonging to, the assessee.

Clause 194 – Tax on transfer of Virtual Digital Assets

Clause 194 comprehensively covers the taxation on certain incomes such as royalty etc. As per this clause, where an assessee (any person) received any income from the transfer of any virtual digital asset, whether capital asset or not, will be liable to pay tax @ 30% on such income. The assessee can deduct only the cost of acquisition of such VDA for computation of income i.e. no other deduction will be allowed to the assessee for any expenditure. Moreover, the assessee will neither be allowed to set off any loss on such transaction nor to carry forward the loss to any succeeding tax years.

VDAs covered under Undisclosed Income of any other person

As per Clause 295 of the Income Tax Bill, 2025, – “Where the Assessing Officer is satisfied that any undisclosed income belongs to or pertains to or relates to any person, other than the person with respect to whom search was initiated or requisition was made, then––

(a) any money, bullion, jewellery, virtual digital asset or other valuable article or thing, or assets, or books of account, other documents, or any information contained therein, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person; and

(b) such other person referred to in clause (a) shall be assessed under section 294 and the provisions of this Chapter shall apply accordingly.”

Therefore, if in the course of any search proceedings against any assessee, the AO finds any virtual digital assets belonging to another person, the same will be handed over to the AO having jurisdiction over the other person and the other person shall now be assessed under Clause 294 i.e. Procedure for block assessment.

In this case, as per Clause 294, the block period for such assessment or reassessment shall be the same as that determined in respect of the person in whose case search was initially initiated or requisition was made and proceedings under the said section were initiated due to such search or requisition.

TDS implications on Virtual Digital Assets

In the new Income Tax Bill, 2025, Clause 393 deals with the law on the tax deducted at source (TDS). Table serial no. 8(vi) under this clause, for payments to residents, refers to the TDS implications on transfer of VDAs. In case of transfer of virtual digital assets, on any sum or consideration, TDS has to be deducted @ 1%.

Presumption as to assets, books of accounts

As per Clause 524(1), – “Where any books of account, other documents money, bullion, jewellery, virtual digital asset or other valuable article or thing, is found in the possession or control of any person in the course of a search under section 247 or survey under section 253, it may, in any proceeding under this Act, be presumed—

(a) that such books of account, other document, money, bullion, jewellery, virtual digital asset or other valuable article or thing belong or belongs to such person;

 (b) that the contents of such books of account and other document are true;

(c) that the signature and every other part of such books of account and other document, which purports to be in the handwriting of any particular person, or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in the handwriting of that person; and

(d) in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested article or thing belong or belongs to such person.”

Therefore, the term virtual digital assets has been included as a part of the list of assets presumed to be belonging to the assessee on whom the search or survey proceedings have been conducted.