Crypto Tax in India: How the 30% Flat Tax and 1% TDS Work on Your Gains

You sold some Bitcoin at a profit, and then you sold a different token at a loss the same month. Naturally, you assume the loss cancels out part of the profit before tax, the way it works with stocks. It doesn't. India's crypto tax rules are stricter and less forgiving than almost anything else in the tax code, and a lot of people find that out only after they've already filed a return that understates what they owe.

What is crypto tax in India? #

Cryptocurrency and other virtual digital assets (VDAs), a category that includes crypto tokens and NFTs, are taxed under a dedicated regime introduced by the Finance Act 2022: Section 115BBH and Section 194S of the Income Tax Act. Unlike most other income, VDA gains don't get slotted into your regular income tax slab. They're taxed at a flat rate regardless of how much you earn, and the usual tricks for reducing a tax bill, like offsetting a loss against a gain, simply aren't available.

Two separate mechanisms apply, and it helps to keep them distinct in your head: a flat 30% tax on gains at the time you file your return, and a 1% TDS deducted upfront by the exchange or buyer at the time of the transaction itself, which then gets adjusted against your final tax liability.

How the 30% tax and 1% TDS actually work #

The 30% flat tax (Section 115BBH):

Gain = Sale value - (Purchase cost + Transfer fees)
Tax on gain = Gain x 30%, only if gain is positive

This tax applies to the gain, not the full sale value, and the only deduction the law allows is the cost of acquisition plus transfer fees like exchange charges. You cannot deduct internet bills, hardware costs, or any other expense related to your crypto activity, no matter how directly related it feels.

The 1% TDS (Section 194S):

TDS = Sale value x 1%, applied once your cumulative VDA transactions
      for the financial year cross the specified threshold

The current rules set that threshold at ₹50,000 in a financial year for most individuals, though a lower ₹10,000 threshold applies to certain specified persons under the tax audit provisions, so check the exact threshold that applies to your case on the Income Tax portal before filing. TDS is deducted by the exchange (or the buyer, in a peer-to-peer trade) at the time of the transaction, and it's adjusted against your total tax liability when you file your return, similar to how TDS on your salary works.

A worked example with real numbers #

Say you bought a token for 2,00,000 rupees and sold it later for 3,50,000, paying 2,000 in exchange fees on the sale. Your cumulative VDA transactions for the year have already crossed 50,000, so TDS applies.

Step 1: Calculate the gain

3,50,000 - (2,00,000 + 2,000) = 1,48,000

Step 2: Apply the 30% tax

1,48,000 x 30% = 44,400

Step 3: Apply 1% TDS on the sale value

3,50,000 x 1% = 3,500

Step 4: Net proceeds after both

3,50,000 - 44,400 - 3,500 = 3,02,100

Out of a 3,50,000 sale, you actually receive 3,02,100 once tax and TDS are accounted for, on a token that cost you 2,02,000 to acquire and sell. That's roughly a 22% effective bite out of your gain once TDS is included, though the TDS portion comes back to you as a credit against your total tax liability, not as an additional cost layered on top of the 30%.

Now consider a loss. You bought a different token for 2,00,000 and sold it for 1,50,000, a loss of 50,000. Since there's no gain, the 30% tax doesn't apply. But TDS still does, because it's calculated on sale value, not on gain:

Tax on gain: 0 (no gain, no tax)
TDS: 1,50,000 x 1% = 1,500
Net proceeds: 1,50,000 - 1,500 = 1,48,500

This is the part that surprises people. You lost money on the trade, and you still had 1,500 rupees deducted as TDS, because TDS looks only at the transaction value, not whether you made or lost money on it. You can claim this TDS back when you file your return, but the cash flow hit happens either way.

Try your own numbers on the crypto tax calculator, or see how a large transaction plays out at ₹20,00,000 sale against ₹12,00,000 cost.

Why understanding this actually matters #

It prevents you from underpaying and getting flagged. Assuming crypto gains work like equity capital gains, where losses offset profits, is the single most common way people underreport what they owe. The tax department has access to exchange data, and mismatches between what you report and what TDS records show tend to get noticed.

It changes how you should think about trading frequency. Because losses can't offset gains and every profitable trade is taxed at a flat 30% regardless of your holding period, frequent trading in and out of positions has a real, compounding tax cost that a buy-and-hold approach with equities doesn't have.

It affects your cash flow, not just your final tax bill. The 1% TDS is deducted immediately at the time of sale, before you've even calculated your annual tax liability. If you're trading in volume, that adds up to real money sitting with the government until you file and claim it back.

It applies even to crypto-to-crypto trades. Swapping one token for another is still treated as a sale of the first token, meaning gains are calculated and taxed even if you never converted anything to rupees.

Common mistakes and myths #

Myth 1: "I can offset my crypto losses against crypto gains." You cannot, even within the same financial year. If you made a 1,00,000 profit on one token and a 1,00,000 loss on another, you still owe 30% tax on the full 1,00,000 profit. The loss simply disappears for tax purposes; it cannot be carried forward to future years either.

Myth 2: "I can offset crypto losses against my salary or stock market gains." No. VDA losses cannot be set off against any other head of income, including salary, business income, or capital gains from stocks and mutual funds. This isolation is unique to crypto among common Indian asset classes.

Myth 3: "TDS is an extra tax on top of the 30%." It isn't a separate cost; it's an advance collection that gets credited against your final tax liability when you file your return. If your actual tax works out to less than the TDS deducted, you get the difference refunded.

Mistake: forgetting to report crypto-to-crypto swaps. Many traders track only the rupees they've withdrawn to their bank account and skip reporting token swaps, assuming no tax applies until cash changes hands. Each swap is a taxable event in its own right, and skipping it is a common source of under-reporting.

Tips for staying compliant #

• Keep a transaction-level record of every buy, sell, and swap, including exchange fees paid, since the cost of acquisition and fees are the only deductions the law allows.
• Track your cumulative annual transaction value across all exchanges you use, since the TDS threshold is based on your total activity for the year, not per exchange.
• Set aside 30% of any crypto profit as soon as you realize it, rather than waiting until tax filing season, since there's no loss offset to soften an unexpected bill later.
• Reconcile TDS certificates (Form 26AS) from every exchange you've traded on before filing, so you claim full credit for what's already been deducted.
• Treat every crypto-to-crypto trade as a taxable sale for record-keeping purposes, even if no rupees changed hands.

Related calculators #

• Crypto tax calculator to calculate your exact tax and TDS, including a below-threshold example and a loss scenario.
• Income tax calculator to see how your crypto tax liability adds to your overall tax picture, alongside a ₹12 lakh salary comparison.
• Old vs new tax regime calculator if you're weighing which regime suits you better for your salary and other income, separate from your crypto tax which stays flat under either regime.
• LTCG calculator if you're also comparing this to how equity and mutual fund gains are taxed, which follow a very different set of rules.

Frequently asked questions #

Can I set off crypto losses against gains from the same year? #

No. Section 115BBH specifically disallows setting off a loss from one VDA transaction against a gain from another, even within the same financial year and even across different tokens or exchanges.

Is the 1% TDS refundable if I don't owe that much tax? #

Yes. TDS deducted under Section 194S is adjusted against your total tax liability when you file your income tax return. If your actual tax due is less than the TDS already collected, the excess is refunded, just like TDS deducted from salary.

Does the 30% tax apply regardless of how long I hold the crypto? #

Yes. Unlike equity or mutual funds, where holding period determines whether a gain is short-term or long-term and taxed differently, VDA gains are taxed at a flat 30% no matter how long you held the asset, whether it's a day or several years.

Do I need to pay crypto tax if I only received crypto as a gift? #

Receiving VDAs as a gift can itself be taxable as income under certain conditions, and separately, when you later sell that crypto, the 30% tax applies to the gain calculated from your cost basis. The gifting and the eventual sale are two different taxable events, so check both when filing.

What happens if I trade on a foreign exchange instead of an Indian one? #

The 30% tax on gains still applies to Indian tax residents regardless of which exchange you use, since it's based on your residency status, not where the platform is based. TDS under Section 194S, however, is typically enforced through Indian exchanges and buyers, so foreign exchange trades may not have TDS deducted automatically, which doesn't remove your obligation to report and pay tax on the gain yourself.

Know your number before you file #

Crypto tax rules in India don't bend the way equity tax rules do. No loss offset, no carry forward, and a flat rate that doesn't care about your income bracket. The only real lever you have is knowing your exact numbers before you file, not after a notice arrives.

Run your transactions through the crypto tax calculator to see your gain, tax, and TDS laid out clearly, and always confirm the current thresholds and rates on the official Income Tax portal before you file, since these provisions can be revised in future budgets.