In February 2022, the Indian government dropped two numbers that changed how every crypto trader in the country operates: 30% tax on gains and 1% TDS on every transaction. Since then, confusion, rumors, and misinformation have spread widely. This guide clarifies the law, its impact on your trades, and your actual tax liability.
What exactly is 30% tax in crypto?
Under Section 115BBH of the Income Tax Act, any profit from transferring a Virtual Digital Asset (VDA), which includes cryptocurrency, NFTs, and any digital asset notified by the government, is taxed at a flat rate of 30%. This flat rate applies to everyone, whether you earn ₹3 lakh a year or ₹3 crore. Your income slab does not matter here. Even if you are in the 0% tax bracket for your salary, your crypto profits are still taxed at 30%.
On top of the 30%, a 4% health and education cess is applied, making the effective rate 31.2%. If your total income exceeds certain thresholds, a surcharge may also apply, pushing the effective rate even higher for large earners.
What is 1% TDS in crypto, and how does it work?
TDS stands for Tax Deducted at Source. Under Section 194S, every time you sell or trade crypto on an Indian exchange, the platform deducts 1% of your transaction value and sends it directly to the government on your behalf. This is not an additional tax; it is an advance payment toward your final tax liability. When you file your ITR, this TDS is credited against what you owe, and if you have paid too much TDS versus your actual tax liability, you get a refund.
TDS threshold, when is it deducted?
TDS is deducted when a transaction exceeds ₹10,000 in a financial year for most individuals, or ₹50,000 for “specified persons” (individuals whose business turnover is under ₹1 crore or professional income under ₹50 lakh). This threshold is per exchange per financial year. If your total crypto transactions on an exchange exceed this threshold in FY 2024–25, every subsequent transaction has 1% deducted.
The five rules that trip people up most
- Can I offset a loss in Bitcoin against a profit in Ethereum?
No. The law is very clear losses from one virtual digital asset cannot be set off against gains from another VDA. Each coin is treated independently. If you lost ₹5 lakh on DOGE and made ₹5 lakh on ETH, you still pay tax on the full ₹5 lakh ETH gain.
- Can I carry forward crypto losses to next year?
No. Crypto losses cannot be carried forward to offset future crypto gains either. They simply disappear. This is one of the harshest aspects of the Indian crypto tax regime compared to most other countries.
- Can I deduct trading fees or exchange charges?
The only deduction allowed is the cost of acquisition what you originally paid for the crypto. Exchange fees, gas fees, and other transaction costs cannot be deducted from your profit as per current law.
- Is a crypto-to-crypto swap taxable?
Yes. Swapping BTC for ETH is treated as selling BTC (taxable event) and buying ETH (new cost basis). Many traders do not realize these facts and end up with surprise tax bills from their DeFi and swap activity.
- What if I trade on a foreign exchange like Binance?
Your tax liability exists regardless of which exchange you use. On foreign exchanges, TDS is not deducted automatically, but you are still legally required to declare all gains and pay 30% tax when filing your ITR. The Income Tax department has been increasingly cross-referencing foreign exchange data.
How to file an ITR form?
Crypto gains are reported under Schedule VDA in your ITR. Most individual traders file ITR-2 (if crypto is treated as capital income) or ITR-3 (if treated as business income). The IT department introduced the dedicated Schedule VDA starting AY 2023–24. You must report each transaction’s coin name, date of acquisition, date of transfer, buy price, and sell price. Aggregated reporting is not allowed; each trade must be itemized.
The honest bottom line for Indian crypto traders
India’s crypto tax regime is one of the strictest in the world, with a 30% flat tax that does not allow loss offsetting and a 1% TDS that locks up working capital, which are genuine handicaps for active traders. Many Indian traders have moved to foreign exchanges or shifted to longer holding strategies as a result. However, non-disclosure is far riskier now than it was in 2021. The government has access to exchange data, banking trails, and blockchain analytics. Filing accurately and on time, even if the tax is painful, is significantly safer than the alternative.