Fact-checked and reviewed by Kshitij Shah (BitNine), Chartered Accountant.
Sending crypto to another wallet does not always mean the same thing for tax purposes. It could be a transfer between two wallets owned by the same person, a genuine gift to a family member, a gift to a friend, or a payment that has merely been described as a gift. Each situation creates a different reporting outcome.
For a genuine crypto gift, the tax question usually falls more heavily on the recipient than on the donor. Section 56(2)(x) can tax virtual digital assets received without consideration when the recipient does not qualify for an exemption and the aggregate fair market value crosses the prescribed threshold. Gifts from specified relatives, gifts received on the occasion of marriage, and assets received under a will or inheritance are treated differently.
The next tax event arises when the recipient eventually sells or swaps the gifted VDA. At that point, section 115BBH and Schedule VDA become relevant, and the correct cost of acquisition depends on whether the gift was taxed when received or qualified for an exemption.
This guide explains how to distinguish a genuine gift from an ordinary wallet transfer, who may have tax to pay, how the ₹50,000 threshold works, and what should be reported in the ITR.
Key takeaways
- Moving crypto between wallets that belong to the same person is not a gift and should not be recorded as a sale.
- A genuine gift of a VDA held as a capital asset will generally not create taxable capital gains for the donor merely because the asset was transferred without consideration.
- A recipient can be taxed under section 56(2)(x) when VDAs are received from a non-relative without consideration and their aggregate fair market value exceeds ₹50,000.
- If the ₹50,000 threshold is crossed, the whole aggregate fair market value is generally taxable, not only the amount above ₹50,000.
- Crypto received from a specified relative, on the occasion of the recipient’s marriage, or under a will or inheritance is generally exempt at the time of receipt.
- When the recipient later sells the gifted VDA, the transfer is reported in Schedule VDA and taxed under section 115BBH. The cost basis used depends on how the original gift was treated.
No credit card required
Why every wallet transfer is not a crypto gift
A blockchain record only shows that crypto moved from one address to another. It does not explain whether ownership changed.
If you transfer BTC from an exchange account to your own hardware wallet, no gift has taken place. The same owner controls the asset before and after the movement. It is an internal transfer and should be preserved as such in your records so that it is not mistakenly imported as a disposal.
A gift requires a genuine change in beneficial ownership without consideration. The recipient receives the VDA without paying money, transferring another token, providing services, or giving something else in return.
That distinction matters because these transactions are not treated alike:
- Transfer to your own wallet: no change in ownership and ordinarily no taxable sale.
- Crypto given to another person without payment: potentially a gift.
- Crypto sent in return for services: compensation or business income, not a gift.
- Crypto exchanged for another asset: a VDA transfer, not a gift.
- “Gift” followed by an informal repayment: may be viewed as a disguised sale rather than a genuine gift.
The transaction label used on an exchange or in a private message is not conclusive. The surrounding facts, ownership records, and payment trail should support the claim that the transfer was genuinely gratuitous.
Who is taxed when a VDA is gifted
For an ordinary investor giving away crypto held as a capital asset, a genuine gift will generally not produce taxable capital gains merely because the asset moved to another person. Section 47(iii) provides that a transfer of a capital asset under a gift is not regarded as a transfer for the ordinary capital-gains charge. There is also no sale consideration received by the donor.
This does not mean every transfer described as a gift is automatically outside tax. A supposed gift may need separate review if:
- the donor receives money or another asset in return;
- the VDA forms part of business stock rather than an investment holding;
- the transaction is connected with employment or professional services; or
- the documentation does not support a genuine gift.
For most personal gifts, however, the more important immediate tax question is on the recipient’s side.
Virtual digital assets are included within the specified movable-property rules under section 56(2)(x). Where a person receives a VDA without consideration, the fair market value can be taxable as income from other sources unless an exemption applies.
A genuine gift also does not ordinarily create section 194S TDS at the time of transfer because no consideration is being paid. Section 194S is linked to payment of consideration for the transfer of a VDA. If the recipient later sells the asset, the normal TDS rules may apply to that later transaction.
Which family gifts qualify for exemption
A crypto gift received from a specified relative is generally exempt under section 56(2)(x), regardless of its value. The exemption does not apply to everyone whom a taxpayer may casually describe as family.
For an individual, the statutory meaning of relative includes:
- spouse;
- brother or sister;
- brother or sister of the spouse;
- brother or sister of either parent;
- a lineal ascendant or descendant of the individual;
- a lineal ascendant or descendant of the spouse; and
- the spouse of the relatives listed above.
Parents, grandparents, children, and grandchildren therefore generally fall within the relative exemption. Cousins, friends, colleagues, and unmarried partners do not automatically qualify merely because the relationship is close.
Other important exemptions include crypto received:
- on the occasion of the individual’s marriage;
- under a will or by inheritance; and
- in contemplation of the donor’s death.
The marriage exemption is tied to the recipient’s own marriage. A crypto gift received for a birthday, anniversary, engagement, or another celebration does not qualify under the marriage exception merely because it was given during a family event.
An exempt receipt does not mean the tax history can be forgotten. The donor’s acquisition cost becomes important when the recipient later disposes of the VDA.
How the ₹50,000 threshold applies to gifts from others
When crypto is received from a person who is not a specified relative and no other exemption applies, section 56(2)(x) must be considered.
For specified movable property received without consideration, the threshold is based on the aggregate fair market value received during the financial year. It is not applied separately to every token or every transfer.
Suppose a taxpayer receives:
- VDA worth ₹20,000 from one friend;
- VDA worth ₹18,000 from another friend; and
- VDA worth ₹25,000 from a colleague.
The aggregate value is ₹63,000. Because the total exceeds ₹50,000, the whole ₹63,000 may become taxable under section 56(2)(x), not merely the ₹13,000 above the threshold.
This aggregation rule is easy to miss when gifts arrive through different wallets or exchanges. A taxpayer may review each transfer separately and conclude that none exceeds ₹50,000, even though the combined value crosses the limit.
The fair market value should be supported in Indian rupees on the date the recipient obtains the VDA. A practical record should identify the token, quantity, receipt date and time, market-price source, conversion rate, and resulting INR value.
If crypto is transferred for less than fair market value rather than given completely free, the inadequate-consideration provisions can also become relevant where the aggregate difference exceeds ₹50,000. That is a narrower situation, but it prevents taxpayers from avoiding the gift rules by attaching a nominal payment to the transfer.
How different crypto gift situations are treated
| Situation | Tax when the VDA is received | Cost when the recipient later sells |
| Gift from a specified relative | Generally exempt under section 56(2)(x) | Donor’s original cost of acquisition |
| Gift from a non-relative with aggregate FMV of ₹50,000 or less | Generally not taxable under the threshold rule | Cost to the previous owner |
| Gift from a non-relative where aggregate FMV exceeds ₹50,000 | Whole aggregate FMV may be taxable under section 56(2)(x) | Amount on which section 56(2)(x) tax was paid |
| Gift received on the recipient’s marriage | Generally exempt | Previous owner’s cost |
| Crypto received under a will or inheritance | Generally exempt | Previous owner’s cost |
| Transfer between wallets owned by the same taxpayer | Not a gift and no receipt-side income | Existing cost history continues |
| Crypto received for work, promotion, or services | Usually compensation or business income rather than a gift | Value already recognised as income, subject to the relevant facts |
The most important distinction in the table is between a gift that was taxed under section 56 and one that was exempt. The ITR’s Schedule VDA reflects this difference directly when asking for the cost of acquisition of gifted VDAs.
What happens when the recipient sells the gifted VDA
Receiving the gift and selling it later are two separate tax events.
If the recipient later sells, swaps, or otherwise transfers the VDA, section 115BBH generally applies to the income from that transfer. The taxable amount is calculated using the consideration received minus the permitted cost of acquisition. Other expenses are generally not deductible, and a loss from one VDA transfer cannot be set off against another income or carried forward.
For gifted VDAs, Schedule VDA provides two cost treatments:
- where tax was paid under section 56(2)(x), use the amount that was taken into account and taxed when the gift was received;
- in other gift cases, use the previous owner’s cost.
Consider a taxpayer who receives ETH worth ₹1.20 lakh from a friend. No exemption applies, so the ₹1.20 lakh receipt is taxed under section 56(2)(x). The taxpayer later sells the ETH for ₹1.70 lakh.
For the later Schedule VDA computation:
- consideration received: ₹1.70 lakh;
- cost of acquisition: ₹1.20 lakh;
- income from transfer: ₹50,000.
The ₹1.20 lakh should not be taxed again as part of the later gain because it was already recognised at the receipt stage.
The result is different for a gift from a parent. If the parent bought the VDA for ₹40,000 and later gifted it to the child when it was worth ₹1.20 lakh, the receipt is generally exempt. When the child later sells it, the relevant cost is usually the parent’s original ₹40,000 cost, not the ₹1.20 lakh value on the gift date.
This is why the recipient needs the donor’s acquisition records even when no tax is payable at the time of the gift.
Where gifted crypto belongs in the ITR
The correct schedule depends on whether the taxpayer is reporting the receipt or a later disposal.
When the receipt itself is taxable
If a non-exempt gift is taxable under section 56(2)(x), the fair market value belongs in Schedule OS, under income from other sources of the nature referred to in section 56(2)(x).
The pure receipt should not be entered as sale consideration in Schedule VDA because the recipient has not yet sold or swapped the asset.
When the receipt is exempt
A gift from a specified relative or another exempt source does not create taxable income under section 56(2)(x). The taxpayer should nevertheless keep the gift documentation and the donor’s cost records for the later disposal.
When the recipient later transfers the VDA
The sale or swap belongs in Schedule VDA. The taxpayer should report the transaction details, permitted cost, consideration received, and resulting positive income.
ITR-2 will generally apply where the individual does not have business or professional income. ITR-3 becomes relevant where the VDA activity or other income is treated as business or professional income.
A taxpayer should not combine the receipt-side section 56 amount and the later Schedule VDA gain into one consolidated figure. They arise at different stages and belong in different schedules.
Records to keep when transferring crypto as a gift
A blockchain transaction hash proves that a movement occurred, but it does not prove the relationship between the parties or why the transfer happened.
A proper crypto gift file should retain:
- donor and recipient names and PAN details, where available;
- wallet addresses used for the transfer;
- transaction hash and transfer date;
- token name and quantity;
- fair market value in INR on the receipt date;
- evidence of the relationship where the relative exemption is claimed;
- a gift declaration or gift deed for substantial transfers;
- confirmation that no consideration was paid;
- the donor’s acquisition date and original cost; and
- the recipient’s later sale records.
The gift document should not be treated as a substitute for the transaction evidence. The written declaration, blockchain record, exchange export, valuation, and cost history should support one another.
For transfers between the taxpayer’s own wallets, ownership evidence is equally useful. It helps prevent internal movements from being wrongly classified as gifts or taxable disposals when transaction data is imported from several platforms.
How cryptact helps
Crypto gift reporting becomes difficult when the donor’s purchase record, the wallet transfer, and the recipient’s later sale sit in different systems. Without a connected history, an internal wallet movement can look like a disposal, or a genuine gift can appear to have no usable cost basis.
cryptact helps bring exchange and wallet histories together so taxpayers can identify the original acquisition, mark transfers correctly, and preserve the later disposal trail. It also makes it easier to separate transfers between the same owner’s wallets from genuine changes in ownership.
For the recipient, that record history is particularly important. The correct Schedule VDA cost may be the value already taxed under section 56(2)(x) or the donor’s original acquisition cost. Keeping those records linked reduces the risk of taxing the same amount twice or claiming an unsupported cost.
Conclusion
Crypto gift tax in India depends on three separate stages: what the donor transferred, whether the recipient was taxed when the VDA was received, and how the asset is treated when it is later sold.
A gift from a specified relative can be exempt at the receipt stage, while a gift from a friend or another non-relative may become taxable if the annual aggregate fair market value exceeds ₹50,000. When the gifted crypto is later transferred, section 115BBH and Schedule VDA apply, with the cost based either on the amount already taxed under section 56(2)(x) or the previous owner’s cost.
The safest approach is to preserve the entire ownership chain rather than treating the wallet transfer as an isolated transaction. cryptact helps connect the donor’s acquisition history, the gift transfer, and the recipient’s later disposal so that section 56 reporting and Schedule VDA reporting can be prepared from the same consistent record.
