Tier-2 Districts Lead in Virtual Digital Asset Transactions, Tax Data Shows

Recent government data reveals that several tier-2 and peripheral districts in India, including North 24 Parganas in West Bengal, Medchal-Malkajgiri in Telangana, and Kokrajhar in Assam, are among the top contributors in terms of transaction value for Virtual Digital Assets (VDA), commonly known as cryptocurrencies. These areas have recorded significant values in tax deductions at source (TDS) related to crypto dealings, highlighting an expanding footprint beyond traditional metropolitan centers.

While these districts show high transaction values, major financial and technology centers such as Bengaluru Urban, Mumbai Suburban, and Chennai continue to lead in the number of unique taxpayers involved in VDA transactions. This indicates a strong concentration of digital asset activity in well-established economic hubs alongside growing participation from emerging regions.

Authorities have noted the potential misuse of dormant bank accounts and Permanent Account Numbers (PAN) in some districts of West Bengal, Telangana, and Assam for VDA transactions. However, through enhanced inter-agency collaboration and advanced technological tools implemented by the Income Tax Department, suspicious transactions have been effectively monitored and addressed.

North 24 Parganas district has shown notable year-on-year growth in transaction values, reflecting increasing engagement with digital assets. Other districts such as Coimbatore, Kakinada, Lucknow, Jaipur, and Mumbai Suburban recorded high transaction values during the fiscal year 2025 but observed a moderation in activity in fiscal year 2026, according to government sources.

When analyzing the population of unique deductees—the number of individuals from whom tax at source has been deducted—Bengaluru Urban consistently tops the list from fiscal years 2023 through 2026. This trend underscores the city’s role as a leading technology and fintech hub, fostering significant digital asset transactions.

State-wise data highlights Karnataka as the leader in the number of unique deductees, followed closely by Uttar Pradesh and Maharashtra. States like Andhra Pradesh, Telangana, and Rajasthan continue to experience growth in taxpayer numbers related to VDA income. In contrast, Tamil Nadu, West Bengal, Delhi, and Assam have seen a slight decline after previously sustained expansion.

In fiscal year 2026, Uttar Pradesh and Maharashtra recorded the largest populations of deductees, followed by Rajasthan and West Bengal. This distribution reflects the broadening adoption of virtual digital assets across diverse regions of the country.

Another official pointed out a significant increase in the total number of deductees, which rose to over 32.36 lakh in FY26 from 16.50 lakh in FY23. Concurrently, the value of transactions subject to TDS surged from approximately ₹22,000 crore to over ₹35,000 crore. Correspondingly, TDS collections increased from ₹220 crore to around ₹350 crore during the same period.

Tax revenue from VDA income reached over ₹585 crore in FY25, with data for FY26 still being finalized as tax returns are processed. Income arising from the transfer of virtual digital assets is subject to a uniform income tax rate of 30 percent, plus applicable cess and surcharge. Additionally, a TDS of 1 percent applies on such transfers, except for individuals with transaction values below ₹50,000 or others with transactions under ₹10,000.

The rise in tax collections and the expanding geographic spread of VDA transactions indicate growing integration of cryptocurrencies into the formal financial system. This trend aligns with global efforts to regulate and monitor digital asset flows to ensure transparency and compliance within the taxation framework.

As India’s digital economy evolves, the government's focus on tracking VDA transactions and curbing misuse through technology and coordination among agencies will likely shape the future landscape of cryptocurrency taxation and regulation.