Holding ETH is different from selling or exchanging it: for tax years governed by the Income-tax Act, 1961, section 115BBH applies to income from a virtual digital asset (VDA) transfer. A crypto-to-crypto swap is recognized as an in-kind exchange in the Income Tax Department’s newer VDA TDS form. The official materials reviewed do not conclusively establish when Ethereum staking rewards are taxed or which income head applies to them. First identify the tax year: the 1961 Act continues to govern tax years that began before 1 April 2026, while the Income-tax Act, 2025 applies to tax years beginning on or after that date.
Ethereum tax in India depends first on the tax year
“Ethereum tax” can refer to several different events: retaining ETH, disposing of it for rupees, exchanging it for another token, or receiving ETH as a staking reward. Those events should not be treated as interchangeable. The first question is which tax year the transaction belongs to, because India’s tax-law transition changes which Act and reporting framework apply.
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The Income Tax Department says the Income-tax Act, 1961 was repealed effective 1 April 2026, but its provisions continue to govern tax years that began before that date. The Income-tax Act, 2025 applies to tax years beginning on or after 1 April 2026. As a result, a return filed during calendar 2026 does not, by itself, tell you which Act governs the income being reported. The transaction’s relevant tax year matters.
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The Department’s transition explanation gives the practical distinction: earlier tax years and their assessment proceedings remain under the 1961 Act, while tax-year 2026–27 advance tax operates under the new law. Avoid carrying a section number or form from one period into another without checking the applicable year.
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How the four Ethereum actions compare
| Action | What the official materials support | Practical treatment |
|---|---|---|
| Hold ETH | Section 115BBH of the 1961 Act addresses income from transfer of a VDA. | Keeping ETH without disposing of it is distinct from a sale or exchange. Preserve acquisition records for a later transfer. |
| Sell ETH for rupees | For tax years governed by the 1961 Act, transfer income is taxed at 30%, with applicable surcharge and 4% cess. Acquisition cost is allowed; other expenditure or allowances and VDA loss set-off or carry-forward are restricted. | Record each transfer and its acquisition cost and consideration. The rate is not a statement that tax is charged on gross sale proceeds. |
| Swap ETH for another token | The Income Tax Department’s Form 141 instructions recognize an in-kind transaction or exchange for another VDA for TDS reporting. | Treat the swap as a transfer that needs transaction-level records. Form 141 is a TDS form, not a complete calculation of every user’s final tax liability. |
| Stake ETH or receive rewards | The official sources reviewed do not settle the timing or income head for receipt of Ethereum staking rewards. | Track reward receipt separately from a later sale or exchange; keep dates, quantities, values, and wallet or exchange records. |
What happens when you only hold ETH?
For the transfer charge described in section 115BBH, merely retaining ETH is different from transferring it. If you have not sold, exchanged, or otherwise disposed of the ETH, the described transfer event has not yet occurred. This is a narrow point about the transfer rule; it should not be expanded into a claim that holding cryptocurrency can never have any tax or reporting consequences under any circumstances.
Holding still creates a recordkeeping task. Keep evidence of when and how you acquired the ETH, the quantity, what you paid, and where the records came from. An exchange statement may show a purchase, while wallet records can help establish later movements. Retaining those records makes it possible to connect a later transfer to its acquisition cost rather than trying to reconstruct the history after the fact.
A movement between wallets that you control is not the same thing as a sale to another person, but the official materials summarized here do not provide a complete rule for every type of wallet movement. Keep the transaction hash and wallet details so that a transfer of custody can be distinguished from a disposal when records are reviewed. Do not classify a transaction only from the label shown in an app.
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Selling ETH: the 1961 Act computation and its limits
For tax years governed by the Income-tax Act, 1961, section 115BBH sets a 30% rate on income from transfer of a VDA. The Income Tax Department’s ITR-2 guidance also says applicable surcharge and 4% cess apply. The statutory computation allows the cost of acquiring the asset, but not other expenditure or allowances under the provision. This is why the 30% rate should not be described as a tax on the entire sale price: the rule is framed around income from transfer and permits acquisition cost in the computation.
Section 115BBH also restricts loss relief. It disallows setting off or carrying forward a loss from a VDA transfer, and does not permit other expenditure or allowances beyond acquisition cost. The Act states: “no deduction in respect of any expenditure (other than cost of acquisition, if any) or allowance or set off of any loss shall be allowed to the assessee.” That restriction means a loss on one VDA transaction should not be casually treated as an ordinary loss available to offset income elsewhere.
The Income Tax Department’s AY 2026–27 Schedule VDA calls for transaction-level details, including acquisition date, transfer date, income head, acquisition cost, consideration, and transfer income. It instructs the filer to enter nil in the income field when there is a loss. That nil entry instruction is a reporting direction; it does not convert the loss into a deduction or override section 115BBH’s loss restrictions.
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Swapping ETH for another cryptocurrency
An ETH-to-token exchange is not simply continued ownership of the same asset. The Department’s Form 141 manual identifies a transaction type as “In Kind / In Exchange of another VDA” for VDA transfer TDS reporting under the new Act. That is useful confirmation that an exchange can be recorded as an in-kind transaction rather than a cash sale. For years governed by the 1961 Act, section 115BBH addresses income from transfer of a VDA, and the Schedule VDA reporting framework asks for the details of each transfer.
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1Repair Windows errors before they cause bigger problems2Scan for outdated or missing drivers - takes under a minute3Clear out junk files and repair common Windows errorsDo not infer more from Form 141 than it establishes. It is a TDS reporting form and does not, by itself, determine the final income computation or liability for every swap by every taxpayer. It also should not be used as the tax-year rule for a transaction governed by the earlier Act. The prudent operational approach is to retain the same core evidence as for a cash sale and record the assets and values involved in the exchange.
For a swap, preserve the date and time, quantity of ETH given up, token received, transaction hash, exchange statement, and the rupee valuation method used in your own records. The official Schedule VDA calls for acquisition cost and consideration; keeping the underlying evidence helps support the figures entered in the return. If the platform supplies a transaction record in a non-rupee unit, retain that original record alongside the method used to translate it for reporting.
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Staking ETH and receiving rewards: what is not settled
Staking needs to be separated into two questions: what tax treatment applies when a reward is received, and what happens if that ETH is later sold or exchanged. The official materials reviewed do not conclusively answer the timing or income head for receipt of Ethereum staking rewards. Section 115BBH concerns income from a VDA transfer; the existence of that provision alone does not establish how or when a staking reward is taxed on receipt.
General Income Tax Department guidance describes the residual “Income from Other Sources” head, but that general framework does not, by itself, classify Ethereum staking rewards. It would therefore be too definite to say that every reward is taxed at a particular moment, under a particular head, or at a particular rate on the basis of these materials alone.
Keep a separate reward ledger with the receipt date, quantity, wallet or exchange, and contemporaneous value information available to you. Keep later disposal records separate from reward receipt records. If reward ETH is subsequently sold or exchanged, that later event should be analyzed as a distinct transaction under the law and tax year that apply to it; do not assume the uncertainty over reward receipt also resolves the treatment of a later transfer.
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How to organize records and report transfers
The return fields provide a useful checklist for documentation. For tax years and forms where Schedule VDA applies, the official AY 2026–27 form asks for the acquisition date, transfer date, income head (business or capital gain), acquisition cost, consideration, and transfer income. The form also says to enter nil in the income field when the transfer results in a loss. These fields are the reporting structure, not a substitute for retaining evidence behind each entry.
- Identify the tax year. Determine whether the tax year began before 1 April 2026 or on or after that date. Use the Act and forms applicable to that period rather than relying only on the calendar year in which a return is filed.
- Build a transaction list. Record each sale and exchange separately, with acquisition and transfer dates and quantities. Do not merge multiple disposals into one unexplained total when the schedule asks for transaction-level details.
- Preserve supporting evidence. Retain exchange statements, wallet transaction hashes, acquisition evidence, rupee valuation methodology, transfer records, and any TDS evidence. This recordkeeping recommendation follows from the fields the return asks for; it is a practical way to reconcile them, not an additional statutory rule.
- Separate event types. Mark whether a record concerns a purchase, sale, token swap, reward receipt, or later reward disposal. This is especially important for staking, because the official materials do not settle reward-receipt treatment while transfer rules address later dispositions.
- Reconcile the return figures. Match each reported acquisition cost and consideration to retained records. For a loss under the Schedule VDA instructions, enter nil in the income field rather than treating the loss as an allowable offset.
For tax years beginning on or after 1 April 2026, the Department’s Form 141 manual places VDA transfer TDS in Schedule D under section 393(1), formerly Form 26QE. It allows the transaction type to be recorded as cash or in-kind/in exchange for another VDA. This is an operational change relevant to TDS reporting under the new framework, not a complete guide to the user’s final annual tax position.
The Department’s Form 142 user manual describes a quarterly statement process for qualifying VDA exchanges that have agreed under stated guidelines to deposit tax on behalf of buyers or brokers. That description should not be read to mean every exchange files Form 142 or that a user’s own income tax is fully settled by exchange-level TDS. Keep TDS evidence and reconcile it against the relevant records rather than assuming it replaces your return obligations.
Common mistakes to avoid
- Using one law for every return filed in 2026. The governing Act turns on when the tax year began, not merely the date of filing.
- Calling the 30% rate a tax on gross proceeds. For the 1961 Act period, acquisition cost is allowed in the statutory computation, although other expenditure, allowances, and VDA loss relief are restricted.
- Treating an ETH swap as if no asset changed hands. The Form 141 transaction types include an in-kind exchange for another VDA; preserve details of both sides of the swap.
- Assuming an exchange’s TDS is the final answer. Form 141 and Form 142 concern reporting and deposit processes, not a universal determination of each user’s annual income tax.
- Stating a definitive staking reward rule without support. The official materials described here do not resolve reward receipt timing or its income head. Maintain records and distinguish receipt from later disposal.
Which source applies to each part of the question?
The Income Tax Department’s section 115BBH text and ITR-2 VDA guidance support the 1961 Act discussion of transfer income, the 30% rate, applicable surcharge and cess, acquisition cost, and limits on deductions and losses. The Department’s tax-year transition FAQs explain why that framework does not govern every tax year beginning in 2026. The AY 2026–27 return form supplies the Schedule VDA fields and nil-entry direction for a loss. The Form 141 manual explains the newer Act’s VDA TDS transaction types, while Form 142 concerns a quarterly statement process for qualifying exchanges. General guidance on income from different sources does not resolve the specific tax treatment of staking rewards.
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