Crypto Tax in India: The 30% Rule and 1% TDS Explained

Crypto taxation in India is unusually strict, and that is by design. Since the rules came into force in 2022, the government has treated virtual digital assets (VDAs) — cryptocurrencies, NFTs, and similar tokens — as a special category taxed far more harshly than shares or property. There is a flat 30% rate, no relief for losses, and a 1% TDS that creates a paper trail on every sale.

If you have ever traded on an exchange, received tokens for work, or even swapped one coin for another, you have a tax obligation worth understanding precisely. This guide explains the 30% rule, the 1% TDS under Section 194S, and the loss restrictions for FY 2025-26 (AY 2026-27) — with a worked example.

The Flat 30% Rule

Under Section 115BBH of the Income Tax Act, income from the transfer of a virtual digital asset is taxed at a flat 30%, plus a 4% health and education cess — an effective rate of 31.2% before any surcharge.

What makes this rate punishing is what it ignores:

• No slab benefit. Even if your other income is zero and you would normally pay no tax, crypto gains are taxed at 30% from the first rupee. There is no basic exemption applied to them.
• No holding-period concession. Unlike equity LTCG at 12.5%, there is no lower long-term rate for crypto. Hold for a day or for five years — the rate is 30%.
• No regime difference. As with capital gains generally, the 30% VDA rate is identical under the old and new tax regimes. Your regime choice does not touch it.

Only Cost of Acquisition Is Deductible

When you compute your crypto gain, the only deduction allowed is the cost of acquisition — what you paid to buy the asset. Nothing else.

You cannot deduct:

• Exchange trading fees or brokerage
• Gas fees or network/transaction costs
• Interest on money borrowed to invest
• Any indexation for inflation
• Any other expense connected with the trade

So if you bought a coin for ₹1,00,000 (paying ₹500 in fees) and sold it for ₹1,50,000 (paying ₹600 in fees), your taxable gain is ₹1,50,000 − ₹1,00,000 = ₹50,000. The ₹1,100 in fees is simply not deductible. Tax: ₹50,000 × 30% + 4% cess = ₹15,600.

The Loss Restriction: The Harshest Part

This is where crypto tax diverges most sharply from normal capital gains. Losses from a VDA cannot be set off against anything — not your salary, not your equity gains, not even against gains from another crypto.

Consider a trader who makes ₹2,00,000 profit on Bitcoin and a ₹2,00,000 loss on another token in the same year. Intuitively, the net result is zero. For tax purposes, however, the ₹2,00,000 gain is taxed in full at 30% (₹62,400 with cess), and the ₹2,00,000 loss is ignored entirely. There is no netting across coins.

Worse, these losses cannot be carried forward to future years either. They simply vanish. This is unlike equity capital losses, which can be set off and carried forward for 8 years. Each crypto gain stands alone, and each crypto loss is dead weight.

The 1% TDS Under Section 194S

Separate from the 30% income tax is a 1% TDS under Section 194S, deducted at the point of transfer.

Feature	Detail
Rate	1% of the transfer consideration
Threshold	₹50,000 a year for specified persons; ₹10,000 otherwise
Who deducts	The exchange (on Indian platforms) deducts and deposits it
Nature	A prepayment of tax, not an additional tax
Where it shows	In your Form 26AS and AIS

The key thing to understand: the 1% TDS is not an extra cost in the long run. It is a prepayment, like TDS on salary. When you file your ITR, your final liability is calculated at 30% on your net gains, and the 1% TDS already deducted is adjusted against that. If the TDS exceeds your final tax — which happens to active traders with thin margins — you claim a refund.

Its real purpose is to create a transaction trail so the tax department can see VDA activity. Every rupee of 1% TDS appears in your Form 26AS and AIS, and the department expects the corresponding gains to be declared. Ignoring crypto on your return while TDS sits in your 26AS is an easy way to attract a notice.

A Worked Example: Arjun the Trader

Arjun, a 29-year-old in Pune, makes the following crypto transactions in FY 2025-26, all on an Indian exchange:

1. Bought Coin A for ₹3,00,000; sold for ₹4,20,000 → gain ₹1,20,000.
2. Bought Coin B for ₹2,00,000; sold for ₹1,50,000 → loss ₹50,000.
3. Received an airdrop worth ₹10,000 (fair market value on receipt).

Step 1 — Tax the gain on Coin A: Gain ₹1,20,000. Taxed at 30% = ₹36,000.

Step 2 — The loss on Coin B: ₹50,000 loss is ignored. It cannot offset Coin A's gain or anything else, and cannot be carried forward.

Step 3 — The airdrop: ₹10,000 received is taxable as income at fair market value. As a VDA receipt, it is taxed at 30% = ₹3,000. (When he later sells those airdropped tokens, the ₹10,000 becomes his cost of acquisition.)

Step 4 — Total income tax on VDAs: (₹1,20,000 + ₹10,000) × 30% = ₹39,000, plus 4% cess = ₹40,560.

Step 5 — Adjust the 1% TDS: The exchange deducted 1% TDS on his sell transactions — roughly 1% of (₹4,20,000 + ₹1,50,000) = ₹5,700. This ₹5,700 is adjusted against his ₹40,560 liability, so he pays the balance of about ₹34,860 at filing.

The painful lesson: despite a real-world net of ₹70,000 in trading profit (₹1,20,000 − ₹50,000), Arjun is taxed as if he made ₹1,20,000, because the loss is disallowed.

What Actually Counts as a VDA

The definition of a "virtual digital asset" is deliberately broad. It covers:

• Cryptocurrencies — Bitcoin, Ethereum, and the thousands of altcoins.
• Non-fungible tokens (NFTs) — notified as VDAs.
• Other tokens generated through cryptographic means that can be transferred, stored, or traded electronically.

Indian rupees, foreign currency, and (as currently clarified) certain gift-card or reward-point type instruments are not VDAs. But the practical takeaway is that almost anything you would think of as "crypto" — including tokens received from play-to-earn games, DeFi protocols, or staking — falls inside the 30% net. If in doubt, treat it as a VDA and report it.

How Crypto Tax Compares to Equity

Seeing crypto next to shares makes the harshness obvious. Both are investments, but the tax treatment could hardly be more different:

Feature	Listed equity	Crypto (VDA)
Long-term gain rate	12.5% above ₹1.25 lakh	30% flat, no exemption
Short-term gain rate	20%	30% flat
Holding-period benefit	Yes (lower LTCG rate)	None
Loss set-off	Against capital gains	Not allowed at all
Loss carry-forward	8 years	Not allowed
Expenses deductible	Brokerage, STT-linked	Only cost of acquisition

The contrast is the whole point. The government wanted to make speculative crypto trading far less attractive than equity investing, and the numbers reflect that intent. For the equity rules in full, see our LTCG and STCG guide.

Gifts of Crypto

Crypto received as a gift is taxable in the hands of the recipient if its value exceeds ₹50,000 in a year, taxed as income from other sources — unless it comes from a relative or on an occasion like marriage, which are exempt under the usual gift rules. When the recipient later sells the gifted VDA, the 30% rule applies to the gain, with the cost generally taken as the previous owner's cost. This closes the loophole of "gifting" appreciated crypto to a lower-income family member to dodge the 30%.

A Note on Foreign Exchanges

Many Indians trade on overseas platforms that do not deduct the 1% TDS. This does not make the income tax-free. You remain liable for 30% on your gains and, technically, for ensuring the TDS obligation is met. Holdings on foreign exchanges may also attract foreign-asset reporting requirements in your ITR (Schedule FA), and non-disclosure of foreign assets carries serious penalties under separate law. If you use offshore platforms, keep impeccable records and consider professional advice — the absence of an automatic TDS trail does not mean the absence of a reporting duty.

Which ITR Form and How to Report

Crypto income is reported in the Schedule VDA of the ITR. Because of this, you generally cannot use the simplest ITR-1; you will typically need ITR-2 (if you hold crypto as an investment) or ITR-3 (if you trade as a business). Our guide on which ITR form to use walks through the choice. You will report each VDA transaction — date of acquisition, date of transfer, cost, and consideration — so keep clean records from your exchange.

Common Mistakes

Netting gains and losses. The single biggest error. You cannot offset a loss on one coin against a gain on another. Each gain is taxed; each loss is ignored.

Deducting fees and gas costs. Only the cost of acquisition is allowed. Trading fees, gas, and interest are all non-deductible.

Treating the 1% TDS as the final tax. The 1% is a prepayment. Your real liability is 30% on net gains, against which the TDS is adjusted.

Forgetting crypto-to-crypto swaps. Swapping one coin for another is a transfer and triggers tax on any gain at the moment of the swap, even though no rupees changed hands.

Ignoring income receipts. Airdrops, staking rewards, and crypto received for work are taxable as income on receipt at fair market value, separate from later sale gains.

Leaving crypto off the return while TDS sits in 26AS. The department can see the 1% TDS in your Form 26AS and AIS. Omitting the gains is a common trigger for notices.

Using ITR-1. Crypto income requires Schedule VDA, which is not available in ITR-1. Use ITR-2 or ITR-3.

What to Do Next

• Download a full transaction report from every exchange and wallet you used in FY 2025-26.
• List each transfer with date acquired, date transferred, cost, and sale value.
• Calculate the gain on each transaction; remember losses are ignored, not netted.
• Apply 30% plus 4% cess to total gains and to any crypto received as income.
• Check your Form 26AS and AIS for the 1% TDS already deducted under 194S.
• Adjust that TDS against your liability; claim a refund if it exceeds your tax.
• Use ITR-2 or ITR-3 with Schedule VDA, not ITR-1 — see which ITR form.
• Use the income tax calculator to see your total liability including salary and crypto.
• File on time and keep your exchange statements for several years in case of scrutiny.

A practical word on planning. Because losses cannot be set off or carried forward, the usual tax tactics — harvesting losses, netting a bad trade against a good one — simply do not work for crypto. The only real levers are honest ones: hold for income rather than churning (each sale is a taxable event), prefer Indian exchanges that handle the 1% TDS automatically so you are not chasing it later, and keep your cost-of-acquisition records spotless so you never overstate a gain. Treat the 30% as a fixed, unavoidable cost of any realised crypto profit and size your positions with that in mind. Many investors are surprised at filing time precisely because they mentally netted their losses against gains all year — the law never lets them.

Crypto tax in India is unforgiving, but it is also clear: 30% on every gain, no relief for losses, and a 1% TDS trail. Trade with those facts in mind, keep meticulous records, and report everything — the cost of getting it wrong is far higher than the tax itself.

Disclaimer: This article is for educational purposes only and is not tax advice. Tax rules change frequently — verify current provisions on the official income tax portal or with a qualified CA before filing.