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

India taxes crypto gains at a flat 30% whether you held the asset for ten minutes or ten years, and it clips 1% off every transfer at source before you ever see the money. On top of that, crypto losses — unlike every other capital loss you own — simply die at year end. These are not rumours from a Telegram channel; they are statutory text, and this post works through exactly what the law says, what your exchange is already doing to your money, and how the return gets filed.

The rules below come straight from the Income Tax Department's own pages and its January 2026 VDA brochure, with the current section numbers as on 3 November 2026. Where the law has been renumbered under the new Income-tax Act, 2025, I flag it — the tax did not change, the shelf it sits on did.

The 30% rule: Section 115BBH in plain words

Section 115BBH of the Income-tax Act says that where your total income includes income from transferring a virtual digital asset (VDA), the tax on that income is 30% — plus any surcharge your income level attracts and the 4% health and education cess on top. The section was inserted by the Finance Act, 2022 and applies from assessment year 2023-24, meaning transfers from April 1, 2022 onwards. Source: Section 115BBH, Income-tax Act, as published on incometaxindia.gov.in.

Three features make this regime unlike anything else in your return:

• Only the cost of acquisition is deductible. You subtract what you paid for the asset and nothing else. Trading fees, deposit charges, subscription costs, electricity for mining — none of it reduces taxable income. Source: Section 115BBH(2)(a) and the Income Tax Department's VDA brochure, January 2026.
• There is no short-term or long-term distinction. The 30% applies whether the transfer happens a day after purchase or a decade later. Holding longer earns no concessional rate — the opposite of listed equity, where over a year of holding drops the rate to 12.5%.
• It applies whether the asset is a capital asset or not. The law deems the transfer definition to cover VDAs in every character, so there is no argument about whether your trading was investment or business for the rate to bite. (Whether gains are head-of-income capital gains or business income still matters for the return form — more on that below.)

A VDA itself is defined broadly in Section 2(47A): crypto assets on cryptographically secured distributed ledgers, NFTs, and any other notified digital asset — with Indian currency, the digital rupee (CBDC), foreign currency, physical NFTs, gift cards, loyalty points and subscription access expressly excluded. Source: Income Tax Department VDA brochure, January 2026, citing Notifications 74 and 75 of June 30, 2022.

What changed in 2024, 2025 and 2026 (and what did not)

If you have read that capital gains rules were overhauled, rest easy on this one point: the July 2024 Budget rewrote equity and property capital gains (12.5% long-term rate, revised holding periods) and left the VDA chapter untouched — the 30% flat rate with no holding-period benefit continued undisturbed. Source: CBDT's capital gains FAQ issued July 24, 2024, via PIB, read with the current Section 115BBH text.

The 2025 season produced no rate change either. What it did produce was a whole new statute: the Income-tax Act, 2025, which took effect on April 1, 2026 and restates the old Act with new numbering. For a VDA holder, the substance carried over with the numbers changed:

The 30% rate, the cost-only deduction, the loss prohibition and the 1% TDS all continue in the 2025 Act. Cross-checked against three independent tax-law summaries as on 3 November 2026 (myITreturn, August 25, 2026; TDSman, August 24, 2026; NiyamFin, October 8, 2026) — no single official renumbering table was fetchable, though the Income Tax Department's own Section 115BBH page now displays the restated 30% text from the 2025 Act. Transactions from earlier years remain governed by the 1961 Act under the saving provisions, so a FY 2025-26 return cites 115BBH, not the new Act.

The 1% TDS: Section 194S and who counts as a specified person

Section 194S requires the person paying you for a VDA transfer to deduct 1% of the consideration as tax at source — at the time of credit or payment, whichever is earlier. Your exchange does this on every sell and every crypto-to-crypto swap, computing the 1% on the rupee value of what you transfer. Where the consideration is not in cash at all (a pure coin-for-coin exchange), the payer must ensure the tax is actually paid before releasing the consideration. The provision took effect from July 1, 2022. Source: Section 194S, Income-tax Act, as published on incometaxindia.gov.in.

The threshold determines whether any TDS is deducted at all:

• ₹50,000 a year for a specified person. The law defines this as an individual or HUF whose business turnover did not exceed ₹1 crore, or professional receipts ₹50 lakh, in the preceding financial year — or who has no business or professional income at all. A salaried reader falls squarely in this bucket.
• ₹10,000 a year for everyone else — firms, companies, and individuals above those turnover limits.

The threshold is measured on the aggregate value of considerations during the financial year, so the counting happens per PAN, not per trade. And note what the TDS is not: it is not an extra 1% charge. It is an advance against your final 30% liability, creditable when you file. Source: Section 194S(3) and its Explanation, Income-tax Act.

How the TDS reaches your records — and your refund

Your exchange deposits the deducted TDS with the government and files a quarterly TDS return quoting your PAN. The amount then appears in two places you should check every year: Form 26AS (your tax credit statement) and the Annual Information Statement (AIS), which also carries the exchange's transaction-level reporting of your crypto activity — a separate statutory obligation on exchanges under Section 285BAA of the 1961 Act, restated as Section 509 in the 2025 Act. Source: Income Tax Department VDA brochure, January 2026, and the form list annexed to Section 194S.

Two practical consequences follow. First, if your trading produced no taxable gain — say you sold at a loss — the TDS already deducted comes back only as a refund, and only if you file a return claiming it. Second, TDS credits can mismatch: multiple exchanges, rounding on thousands of small trades, or a delayed deposit can leave 26AS showing less than your statement says. Reconcile before filing, ask the exchange to correct its TDS return where needed, and never just swallow the difference. Our Form 26AS guide walks the reconciliation line by line.

Filing: Schedule VDA, and why ITR-1 will not do

The return has a dedicated Schedule VDA. It demands transaction-wise detail for every VDA transfer in the year — serial number of the transaction, date of acquisition, date of transfer, head under which the income is taxed, cost of acquisition (with specific instructions where the asset was received as a gift) and the consideration received. Income per transaction is computed as consideration minus cost, and the schedule's instruction is blunt: in the event of a loss, report it as nil. The positive amounts carry to the capital gains computation and are taxed at 30%. Source: Schedule VDA instructions, incometaxindia.gov.in.

Because ITR-1 (Sahaj) has no VDA schedule, anyone with VDA transfers files ITR-2 — where the income is capital in nature, the usual case for an investor — or ITR-3, where the trading amounts to a business (high frequency, trading as an activity pattern, inventory-like behaviour). The form choice follows your facts; the 30% regime applies either way. Cross-checked against the Income Tax Department's ITR-2 form and FAQs for assessment year 2026-27 and independent filing-season coverage as on 3 November 2026.

Worked examples: the same year with and without losses

Numbers make the asymmetry visible. Assume you are a salaried individual — a specified person, so the ₹50,000 TDS threshold applies.

Example 1: one clean profit. You buy a coin for ₹2,00,000 in June and sell it for ₹3,00,000 in December.

Along the way the exchange already deducted 1% TDS of ₹3,000 on the sale — credited in 26AS, adjusted against the ₹31,200 when you file.

Example 2: profit and loss in the same year. Coin A: bought ₹1,00,000, sold ₹1,40,000 — a ₹40,000 gain. Coin B: bought ₹80,000, sold ₹50,000 — a ₹30,000 loss. Taxable income from VDAs is ₹40,000; the ₹30,000 loss is reported as nil in Schedule VDA and evaporates. Tax: 30% of ₹40,000 plus cess — ₹12,480 — regardless of the loss. And it does not reduce your salary income either.

Example 3: a losing year with TDS still deducted. You transfer ₹58,000 worth of a coin bought for ₹60,000. Taxable gain: nil. But 1% TDS of ₹580 was deducted on the ₹58,000 consideration. That refund exists only if you file — one more reason a no-tax-due year still needs a return.

Gifts of crypto — and a word on inheritance

Receiving a VDA as a gift is not itself the taxable transfer event — receiving it is taxed in your hands under the gift rule: if you receive property, including VDAs, without or for inadequate consideration and its aggregate value exceeds ₹50,000 in a financial year, the value is taxed as your income at slab rates. The standing exemptions apply: gifts from relatives, gifts received under a will or by inheritance, and certain occasion-based receipts. Source: Section 56(2)(x), Income-tax Act, per the department's deemed-income guidance; restated as Section 92(2)(m) in the Income-tax Act, 2025.

Two chains matter after that. When the recipient eventually sells the gifted coin, the normal VDA regime applies — 30% on consideration minus cost. And Schedule VDA's instructions carry specific guidance on computing cost of acquisition for gifted assets, which is exactly the kind of record-keeping that fails when families pass coins along informally. If you are planning to hand crypto to family, document the transfer, and read the wallet guide's section on backups and inheritance before, not after.

The mistakes that cost real money

• Netting losses before celebrating. The 30% applies per transfer with no cross- adjustment. A great year with one bad trade is still a fully taxed year on the gains — no cross-adjustment, no relief.
• Assuming a swap is not a sale. Exchanging one coin for another — or for USDT — is a transfer of the first asset. Every swap is a taxable event with its own cost base and its own 1% TDS.
• Treating TDS as the final tax. The 1% is a credit line, not the bill. Underpaying shows up as demand with interest; the 30% computation is yours to get right in the return.
• Ignoring 26AS/AIS mismatches. The AIS reflects what exchanges reported; a mismatch is a notice generator. Reconcile before filing.
• Using ITR-1 out of habit. With VDA transfers, ITR-1 is not available for that income — filing the wrong form is a defect, not a shortcut.

The regime's design is the policy message: India made crypto taxable and traceable without making it easy. Every number above is statutory, so they change only when Parliament says so — and the shelf they sit on moved in April 2026. Cite the new section numbers (194, 393, 92) for anything from FY 2026-27 onward, and the old ones (115BBH, 194S, 56) for earlier years.

This post is educational, not tax advice. For your specific return — especially where crypto income is large, business-like, or crosses borders — consult a qualified chartered accountant.